Wednesday August 13, 2008 - 11:05:55 GMT
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Forex Research - Pound Drops As King Says Economy Facing Difficult, Painful Adjustment
Pound fell nearly 100 points after BoE Governor stated that the U.K.
economy faces a difficult, painful adjustment and that the â€śbalance of
risks are on the downsideâ€ť. The central bank leader would go on to say
that although near term inflation risks remain elevated, that a sharp
decline in growth will reduce the medium term risks of price stability
and that expectations are that consumer prices will return to their 2%
target within two years.
â€˘ Japanese Yen: Runs Into Resistance at 110
â€˘ Euro: Industrial Production Flat in June
â€˘ British Pound: King Says Downside Risks OutWeigh Inflation Concerns
â€˘ US Dollar: Retail Sales on tap
The Pound fell nearly 100 points after BoE Governor stated that the
U.K. economy faces a difficult, painful adjustment and that the
â€śbalance of risks are on the downsideâ€ť. The central bank leader would
go on to say that although near term inflation risks remain elevated,
that a sharp decline in growth will reduce the medium term risks of
price stability and that expectations are that consumer prices will
return to their 2% target within two years. U.K. also unemployment rose
to 2.7% from 2.6% in July, as jobless claims increase by 20,100. It was
the sixth straight month of increasing unemployment and the second
consecutive above 20,000. The worst housing slump in a quarter century,
rising raw material costs and a slowing global economy have eaten away
at corporate profits which has forced companies to cut expenses.
Therefore, the BoE may have to cut rates by the end of the year to
prevent a recession.
The EUR/USD price action during the overnight sessions was choppy as it
bounced from resistance at 1.4980 and support at 1.4900. The regionâ€™s
June industrial production report showed activity remained flat after
the previous monthâ€™s biggest drop in nearly 16 years. Producers have
had to battle rising input costs and softening demand due to a strong
Euro and slowing global growth on the back of the U.S. credit crisis.
The European economy more than likely contracted in the second quarter
which has moved ECB officials off their hawkish bias and resulted in
the Euro recent weakness. Although the central bank isnâ€™t expected to
cut rates in 2008, as growth slows expect the cries for action from
European leaders to grow louder.
The upcoming retail sales report will present significant event risk
for the dollar as the U.S. consumer is expected to have curbed their
spending, after they have exhausted their rebate checks. The expected
0.1% decline may be underestimating the headwinds that consumers have
been facing from rising gas and food prices, a housing slump and a
deteriorating labor market. Wholesale inventories in June rose 1.1% as
retailers have cut back their purchases in anticipation of a slower
back to school season, which could set the tone for the end of the year
shopping season which accounts for 70% of purchases. The dollar will
struggle to build on its recent gains if the outlook for consumption
diminishes. However, a better than expected result could
Will The EUR/USD Continue to Fall? Join us in EURUSD Forum
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