UK Election Spurs Pound Rally

Weekly Report - 18/05/2015

Post Election GBP Rally

In a sign of confidence, the Pound surged against major currency peers as enthusiasm for the Tories proposed budget cuts and austerity measures offset comments from the Bank of England’s Mark Carney. Nevertheless, warnings on growth were not enough to sap demand and optimism as evidenced by the rally in Sterling.

Last Week

The UK took center stage last week as post-election optimism sent the Pound soaring against peers. The Bank of England was more cautious on the outlook, choosing to keep monetary policy unchanged with Governor Mark Carney highlighting the headwinds facing the economy such as inflation. Although the economy has seen robust growth, evidenced by stronger than forecast manufacturing and industrial production, GDP expansion is forecast to taper. Aside from the UK, Euro Area GDP figures managed to show expansion over prior numbers with both quarterly and annualized GDP growth accelerating. Gains were driven by the fastest growth in years from regional economies such as France and Spain while Germany underperformed expectations. Further to the east, the People’s Bank of China cut interest rates again in a sign that policy measures will be eased further to accommodate the slowdown facing the economy. Industrial growth for the nation missed growth estimates and fixed asset investment also expanded at a weaker pace. The biggest concern was the deceleration in retail sales as the nation tries to shift from its export orientation to increased domestic consumption.


The Week Ahead

Important events to watch in the coming week are the US FOMC Meeting Minutes, Bank of England MPC Meeting Minutes, and inflation figures due from major global economies as the persistent threat of deflation circles the globe. The FOMC Meeting Minutes will be critically important as traders attempt to assess the timetable for higher interest rates amid the slew of data disappointments. The Bank of England’s MPC Meeting Minutes follow UK CPI numbers after the latest Inflation Report showed that price growth is expected to remain below-trend and long-term targets. The Euro Area, United States, and Canada will also be releasing consumer price indices for both monthly and annualized rates. Aside from central bank minutes and inflation, manufacturing and housing are the other significant upcoming events. Manufacturing PMI’s are due from the Euro Area and Germany along with the United States and China. The United States is set to report on building permits and housing starts as well as existing home sales, giving a broader picture of the housing economy.


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