The Pound rallied against all of the major currencies on Wednesday morning following the release of the Bank of England Minutes report. The BoE Monetary Policy Committee voted 8-1 in favour of maintaining its current asset purchasing target of 325 billion Pounds. The only vote for a further QE increment came from David Miles, surprisingly long-term dove Adam Posen did not push for further economic stimulus in May, which marked a significant shift within the MPC and subsequently allowed the Pound to post significant gains against its major currency peers.
The move away from further central bank stimulus could have come as a result of March’s Consumer Price Inflation increase from 3.4% to 3.5%. Although both ecostats have benefitted the Pound in the currency markets, it would take a pair of very rosy spectacles to convince an economist that the UK economy has overcome all of its hurdles. The BoE’s target rate of 2.0% inflation by the end of 2012 now looks to be even tougher to achieve than it did before. The recent oil and commodity price hikes are seen as significant upside inflation risks.
However, Sterling’s dogmatic performance today has also been supported by some encouraging data from the Office for National Statistics. UK Unemployment dropped by 35,000 in March to 2.65 million, which caused the Unemployment rate to fall from 8.4% to 8.3%. But once again the optimistic headline figure is accompanied by some worrying statistics, the claimant count rose to 1.613 million and there haven’t been this many women unemployed since 1987, according to Labour Shadow work and pensions secretary Liam Byrnes.
Future currency forecasts in 2012 for the Pound to Euro exchange rate see Sterling pushing the Euro further and possibly test 41-month highs around the 1.24 mark. However the large number of investors who regularly trade the pair will be eager to maximise their profits and this could allow the Euro to mute its potential losses
Future currency forecasts in 2012 for the Pound to US Dollar exchange rate see Sterling make repeated attempts at settling above 1.6000, but if these prove ineffective then cable could fall as far as 1.5650 on the rebound.
Future currency forecasts in 2012 for Pound against the majors will depend on the UK economy’s ability to meet its growth targets, with the Eurozone likely to struggle to control the contagion between its peripheral nation states, Sterling could benefit as a slightly brighter alternative to the staple US Dollar.
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