Alpesh Patel's NEWSLETTERPRO - The Bank of England’s Inflation Report puts Pound at risk today while Yellen expressed her confidence to the US economy yesterday

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© Alpesh Patel

Dollar was on the forefront of everyone’s attention yesterday in a day that held no important economic news releases other than Janet Yellen’s speech to the House in the US. The new Fed Chairwoman addressed the Financial Services committee and answered lawmakers’ questions regarding the current state of the economy and her views on the future outlook.

Yellen’s remarks were welcomed by market participants and currencies and stock markets were higher on the back of her positive view on the economy. Yellen continued on the same line of former Chairman Bernanke showing her optimism about the recent growth in the economy, she said that she’s planning on going forward with the tapering agenda in “measured steps” and that the job growth is not yet at desirable levels. All in all, her confidence in the economy, the lack of any serious concerns and her commitment on going forward with further tapering reveal a bullish stance over the current economic outlook.

Euro reacted mildly to Yellen’s comments and the European currency retreated lower later in the day to test the 1.3620 level. Dollar was on the rise following Yellen’s confidence in the domestic economy and that pressured the Euro, a short-term peak might be forming around the 1.3680 high.

The Pound on the other hand continued higher printing a new high at the 1.6485 level before retreating to 1.6440 in late US session hours. The British currency is on an uptrend and as we write to you is making another attempt to reach yesterday’s highs. The Pound will be the main focus of the markets today as the Bank of England will release its Inflation Report.

The main thing to look for in today’s release is the unemployment threshold that the Bank of England had set as a target to begin raising interest rates. Unemployment rate is just 0.1% above the current threshold for the Bank of England but it’s no secret that the domestic economy is not strong enough yet to handle higher interest rates. So if they go ahead and lower that threshold to 6% for example this could mean significant losses for the Pound, same thing stands if they take it out completely.

Apart from the unemployment threshold to raise interest rates another thing that we need to pay attention to is the inflation and growth forecasts. Any initial losses in case of a lower threshold should be quickly recovered if the central bank appears optimistic over the current outlook of the economy. So today’s release could prove quite tricky to translate at first so patience is advised. Again, the two main factors to keep an eye on are the unemployment threshold’s level and whether they will lower it and their inflation and growth forecasts.

Important news events today and tomorrow

The key event of the day will be the Bank of England’s Inflation Report and we have discussed the potential outcome in detail above. Earlier in the day, the Euro-zone’s Industrial Production figures are expected as well and a decline is eyed here. This could verify a potential near-term peak in the Euro and it could mean that the European currency could head lower for the day. More information about our tactics in the Analysis section below.

Economic Calendar

Time

Currency

Event

Importance

Forecast

Previous

10.00

EUR

Euro-zone’s Industrial Production

Medium

1.8%

3.0%

10.30

GBP

Bank of England Inflation Report

High

 

 

TECHNICAL ANALYSIS & LEVELS

EUR/USD

GBP/USD

FTSE 100

Gold

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