Market Watch

Weaker growth forecasts from the Bank of England sees Sterling slip back against the euro and continue to fall against the dollar...

The Bank of England released their quarterly inflation report yesterday   morning, reducing their growth forecasts for the UK economy as expected. This   caused Sterling to give back some of the recent gains against the euro and   lose further ground against the dollar. Even though it was expected that the   sentiment of the inflation report would be fairly negative the level of the   revision has caused the pound to sell off, in spite of better than expected   unemployment figures out of the UK. The euro also came under pressure, as the   ECB announced that it would temporarily stop lending to Greek banks to limit   its exposure to the troubled nation and also ruled out further measures to   ease the crisis in the short term. This has continued to weigh in risk   appetite, with global equity markets continuing to suffer, causing the dollar   to gain more ground.

Sterling has continued to lose more ground against the dollar, briefly   breaking below $1.59 before finding support at $1.5890, which   is a key technical level. If this does give way we could easily see the pair   slip all the way to $1.5770. As we were saying yesterday, the key   driver of the move lower is dollar strength because of uncertainty in Greece,   however yesterday’s move was down to a weaker pound because of the inflation   report. Resistance is now around the previous support $1.6050. This   trend still looks like it will continue over the short/medium term as the   current level of risk aversion looks likely to continue until we know what is   going to happen with Greece at least, with the pair being dragged down by the   EUR-USD rate.

The pound gave back some ground against the euro yesterday after the   dovish sentiment from the bank of England opens the door for further   Quantitative Easing. We  are still holding around the €1.25   level, with the view that the pair will continue to track higher in the short   term, as concerns over the euro zone come back into focus. The euro will not   continue to weaken forever, with some analysts split of the reaction if   Greece does leave the euro, which is looking increasingly likely, could well   be viewed as a long term positive for the single currency.