The MPC recent meeting minutes have given the investors new reason to buy the cable as Mr. Dale has given his vote to hike the interest rate by .25% like Mr. Martin Weale and Andrew sentence who called for hiking by .5% while Possen was the only vote for increasing the buying bonds plan by another 50b Stg while the other 5 MPC voting members including BOE president Mr. Mervin King preferred leaving the interest rate unchanged keeping BOE 200b Stg buying bonds plan unchanged.
The cable has been already supported by better than expected release of January Public Sector Net Borrowing which came earlier at -5.3b Stg while the market was waiting for -.7b following increasing by 14.5b in December and this good figure has come after we have seen Feb UK CBI industrial output which surged to 32 from 17 in January and exports orders which came at 11 from 0 in January which is the highest rising since 1995 and also stronger than expected UK retails sales of January increasing monthly by 1.5% while the market was waiting for just .5%.
The Cable is now trading below 1.627 again which has been reached previously with the bullish release of UK Service PMI of January rising above 50 again into the expansion territory at 54.5 above the market expectations of 53.5 from 49.7 in December but it could not even get the formed main resistance at the top formed at 1.6296 which has been reached in the beginning of last November when the greenback was under pressure from the Fed's decision to add another 600b$ in another step of its QE policy for stimulating the economic growth in US while its next expected supporting level is at 1.5962 and it can be followed by 1.582 and the breaking of it can lead to testing 1.5747 again.
It looks that the investors have started to get worried about the interest rate outlook in US which can move up sooner than expected weighing negatively on the equities markets as the recent signs of pricing power in US which we have seen rising of US Philadelphia Fed Manufacturing price paid significantly to 67.2 from just 54.3 showing strong pricing power following the release of US CPI of January which was expected to be .2% m/m and came higher at .3% while the core figure excluding the food and energy was expected to be .1% m/m and came also up at .2% from .1% in December and this stronger than expected prices data over the consuming level have come also following earlier rising of Jan broad figure of US PPI by .8% monthly and also the core figure excluding the food and energy by .5% while it was foreseen to be just .2% as the same of December showing growing prices over the producing and wholesales levels too which can trigger a tightening action by the fed especially with the current continuation of rising of oil and commodities prices which threat the recovery and erode the Fed's efforts of easing for stimulating demand for moving up the growth.
After Dow has come under pressure losing 178 points following the European and Asian equities market which were depressed by the tension in Libya while the US market was closed for holiday in the beginning day of the week, Dow has continued its declining shedding another 107 unfazed of US CB Consumers confidence reaching 70.4 from 64.8 in January while the market was waiting for 65 and US Richmond manufacturing survey reaching 25 while the market was foreseen 17 from 18 in January which got after the earlier surprising rising of US Philadelphia Fed Manufacturing Index of February which was expected to be 21 from 19.3 in January and it has surprised the market by 35.
The European equities markets have come also under increased pressure because of the turmoil in Libya which is one of the most important and nearest oil and gas suppliers to Europe giving Italy 35% of its needs of gas and its supplies are really exposed to be cut currently but the Euro is still finding buying from the enlarged markets expectations of having a closer interest rate hike by the ECB for tackling the prices upside risks pressure which can accumulate in EU in a fast way following UK and the market has had clear stress on that from the ECB Member Mr. Mersch's warning about the inflation upside risks and it is now facing its previous formed top at 1.386 after getting over 1.374 versus the greenback.
The gold is still getting strength from its different features as a safe haven with the tension in Lydia has no clear end and as hedge against inflation with the current rising of prices which are hard to be contained in the required pace in Europe, UK and also US which has started to have pricing power too while the Fed is still caring for helping the struggling labor and housing markets hoping for containing the inflation upside risks over the long term despite the current unrests in the Middle East countries over the short term which end in a country to start in another one threating the oil supplies from this strategic important area rich of oil pushing its prices up which fueled the gold as well to be supported over its recent resistance at 1394$ and the psychological level at 1400$ facing now its recent top of it at 1423$ and breaking it can lead to its recorded high at 1430$.
FX Market Strategist
Walid Salah El Din