Intraday Market Thoughts

Sterling Soars, as FX Focuses on Inflation View

by Ashraf Laidi
May 11, 2011 14:28

Sterling is the best performer of the day after the bank of Englands quarterly inflation report raised its near term inflation outlook to level higher than projected 3 months ago (see below). The aggressive inflation forecast overshadowed the banks growth downgrade, making GBPJPY, GBPCHF, GBPNZD and GBPUSD the top performing currency pairs out of a group of 38 pairs.

The BoE said inflation would peak at 5% in Q4 2011, higher than the previously projected 4.5%. Inflation would then remain above the 2% target throughout 2012 before falling to 2.4% in Q4, higher than 1.7%. FX markets shrugged the BoE growth downgrade of its 2011 GDP view to 2.7% from the February forecast of 2.9%, with the assumption of no change in interest rates. It also lowered its 2012 GDP growth forecast to about 2.8% from the earlier 3.2%.

GBPUSD hit a high of $1.6517, taking out our $1.6430 stop. Stay tuned for our Premium Piece coming up later today for the latest detail on GBPUSD techs, EURCHF. Euro is the day's worst perfomer.



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