The greenback has under pressure after these weak data about the labor market performance which raised the speculations of having another QE3 later this year by the Fed lowering the possibility of hiking the interest rate in the beginning of 2014 to help the British pound to stand above 1.60 psychological level versus the greenback which has been surpassed yesterday after the MPC recent meeting minutes release yesterday which have shown that there was only one voting from Miles in favor of increasing the assets purchasing plan of BOE by Stg 25 Bln to Stg 350 Bln against 8 voters for making no change as Posen has finally joined the majority which is preferring keeping it at Stg 325 Bln.
The minutes have also shown BOE's worries about the inflation outlook because of the energy prices and the substantial contribution of BOE's assets purchasing programs for stimulating the economy in raising the prices in the same time showing that BOE believes that the inflation is to continue holding above its target in the near future by God's will.
We have seen this week that UK CPI has grown in March by 0.3% monthly to be up 3.5% y/y from 3.4% in February and this was the first rising after five consecutive drops since September 2011 when its formed its peak at 5.2% yearly and also over the producing level, we have seen recently that the prices have come higher than expected as the input prices rose by 5.8% yearly while they were expected to rose by just 4.7% from 7.8% in February and also the output prices have rose by 3.6% y/y while they were forecasted to rise by just 3.4% from 4.1% in February while the wages inflation upside risks are still easing as UK average earnings including bonus have decreased to 1.1% in the previous 3 months to February from 1.3%.
The yearly inflation rate had come under pressure in UK this year after diminishing the impact of the standard rate of VAT increasing to 20% from 17.5% on 4th January 2011 which has contributed in raising the inflation by about 0.75% yearly over all the months of 2011 to not be less than 4% yearly in any month of it, while the yearly inflation target of BOE is just 2%.
God willing, in the case of rising, the cable can meet now resistance at 1.6091 then 1.6128 before its recent top at 1.6164 which has been formed by the end of last October before setting back again reached its recent bottom at 1.5231 whereas it has started to rise again to these current levels and in the case of falling again the cable can have psychological support 1.6 before 1.5892 which can be followed by other supporting levels at 1.58, 1.5769, 1.569, 1.5515, 1.5449, 1.5319 before 1.5231 again.
FX Market Strategist
Walid Salah El Din