In early European deals on Thursday, the pound tumbled to a 2-day low against its European and Swiss counterparts after a report showed that UK's output price inflation eased in March. The pound also showed weakness against the currencies of US and Japan.
UK's output prices rose 2% on a yearly basis in March, slower than the 3% increase seen in February, a report from the Office for National Statistics showed. Economists had expected output price inflation to ease to 2.1%. Month-on-month, output prices edged up 0.1%, after remaining flat in February.
At the same time, the input price index for materials and fuels purchased by manufacturing industry fell 0.4% from the previous year, reversing 1% increase in February. From previous month, prices rose 1%. Economists were looking for an annual 0.7% fall and a 0.9% monthly increase.
A separate report showed that UK's visible trade deficit narrowed to GBP 7.3 billion in February from a revised deficit of GBP 7.8 billion in January, the Office for National Statistics said Thursday. Economists had expected the goods trade deficit to contract to GBP 7.6 billion, while the ONS revised January's deficit from GBP 7.7 billion.
The Bank of England is scheduled to announce its interest rate decision at 7:00 am ET. Analysts expect the central bank to hold its key interest rate at a record low of 0.5%. As the interest rate is already near zero, the central bank is left with only non-conventional measures to raise liquidity and support economy.
Economists expect the central bank to confirm its quantitative easing measures today and express commitment towards implementing its GBP 75 billion asset purchase programme. BoE governor, Mervyn King's comment, two weeks ago, was construed as suggesting that the central bank may not fully utilize the GBP 75 billion for asset purchase.
Last month, the BoE had unanimously voted to reduce the Bank Rate by 50 basis points to 0.5%. The interest rate stands at the lowest level since the central bank was established in 1694.
The pound jumped to 148.05 against the yen before losing ground at 2:50 am ET Thursday. As of now, the pound-yen pair is trading near yesterday's close of 146.80 with 145.1 seen as the next target level.
Japan's ruling Liberal Democratic Party (LDP) has approved fresh stimulus spending of JPY 15.4 trillion (USD 154 billion) to resuscitate the world's second-biggest economy from its deepest recession since World War II, reports say.
The figure amounts to 3.1 percent of Japan's gross domestic product and will be the largest ever for a single year, surpassing former Prime Minister Keizo Obuchi's JPY 8.5 trillion stimulus during the Asian financial crisis in 1998. Japan's Prime Minister Taro Aso has unveiled two packages totaling JPY 10 trillion since he took office in September.
The approval came soon after the leaders of the Group of 20 (G-20) pledged last week to spur growth amid signs that the global economy is beginning to recover from its worst financial crisis since the Great Depression.
In economic news, core machine orders in Japan unexpectedly climbed 1.4 percent in February compared to the previous month, the Cabinet Office said. That snapped a four-month string of decline, which was the stat's longest losing streak ever. The February figure came in higher than analyst expectations for a 6.9 percent decline after the 3.2 percent fall in the previous month.
The pound strengthened to a 3-day high of 1.4781 against the dollar by about 2:35 am ET Thursday. Thereafter, the UK currency edged lower and touched 1.4639 at 4:45 am ET, down from Wednesday's close of 1.4712. If the pound-dollar pair falls further, it may likely target the 1.4585 level.
The pound weakened against the Swiss franc after reaching a new multi-week high of 1.6957 at 2:30 am ET Thursday. Currently, the pound-franc pair is trading at a 2-day low of 1.6784, compared to 1.6887 hit late New York Wednesday. If the pair drops further, it may test support around the 1.667 level.
Switzerland's seasonally adjusted unemployment rate increased to 3.3% in March from 3.1% recorded in February, the State Secretariat for Economic Affairs, or SECO, said. The jobless rate matched economists' expectations. On an unadjusted basis, the rate of unemployment in March remained at the level seen in February, 3.4%, while the consensus forecast was for an increase to 3.5%.
Against the euro, the pound fell to a 2-day low of 0.9090 by about 4:45 am ET Thursday. On the downside, 0.911 is seen as the next target level for the UK currency. At yesterday's close, the euro-pound pair was quoted at 0.9026.
Germany's Federal Statistical Office said in a final report that the consumer price index, or CPI, rose 0.5% year-on-year in March, slower than the 1% increase in the previous month. This was the lowest inflation since July 1999. Compared with February, the CPI dropped 0.1% in March, in contrast to a 0.6% rise seen in the preceding month.
Looking ahead, the German industrial production report for February is due at 6:00 am ET.
Turning to the US, the trade balance for February, import and export price index for March and the weekly jobless claims reports have been slated for release in the New York session.
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