Today's BOE quarterly inflation report could contain the current market sentiment adding to the British pound owes. The report came softer than expected expecting the inflation to come down again near 2% in the coming 2 years but the bank did not deny the current upside inflation risks in this same time of down side growth risks which cause a stagflation case in UK. The report came accompanied with the release of UK labor report which has shown an increase of the unemployment rate to 5.4% in June from 5.3% in May and an unexpected increase of the UK Jobs claimant of July to 20.1k from 15.5k in June and the market was expecting 17.5%.

The cable was under the pressure of the greenback appreciation recently diving lower than 1.90 amid weak manufacturing CIBS of July which has reached 44.3 well below 50 in the contracting territory and the recent weak UK housing performance data as the UK mortgage approvals of June have come at just 36k and also last week the releases of the weaker-than-expected UK construction PMI which reached 36.7 in July which is the weakest since the indicator beginning in 1997. These dovish data came along with Halifax reporting of a yearly fall in house prices for more than 10 percent in its monthly report. The cable is now trading at 1.87 and its next support is at 1.853 which was the low of October 2006.
After these recent data, it is hard to have a majority to hike interest rate amid the current decline of the commodities and oil prices which are trading just above 110$ a barrel today as the serious needs of interest rate cut to spur investments and consuming at the current highlighted growth down side risks.

Best wishes

FX Consultant
Walid Salah El Din
E-Mail: mail@fx-recommends.com
http://www.fx-recommends.com