Sterling jumps sharply today as BoE raised it's inflation forecasts in the quarterly inflation report. The report projected that UK inflation would likely hit 5% in 2011 and stay above it's 2% target throughout 2012...
Sterling jumps sharply today as BoE raised it's inflation forecasts in the quarterly inflation report. The report projected that UK inflation would likely hit 5% in 2011 and stay above it's 2% target throughout 2012. In the longer-term, the central bank believes inflation will eventually return to its target in 2013. The forecast is based on assumption of a rate hike in Q3 and then a rise in each quarter of 2012. Market prices of next BoE rate hike from January next year before the report to December after the report, with 94% chance of hike in November. BoE Governor King noted that the "recent pattern of revisions to the projections over the next year -- downward to growth and upward to inflation -- has continued."
Regarding growth, the bank expects 'the most likely outcome' for growth in the medium- term is somewhat 'weaker than in the February report' due to 'a more gradual recovery in consumption and a less pronounced boost from net exports'. Risks to growth are 'skewed to the downside'. Yet, surveys and the growth in employment over recent months suggest that 'underlying activity may have been stronger than indicated by official output data'. The central judgment by the MPC is that 'some pickup in underlying growth is likely during 2011 - albeit less than judged probable in February - driven by a continuing recovery in business investment and a positive contribution from net exports'. More in BOE See Growth Deteriorate, Inflation Remain Elevated In The Near-Term.
Elsewhere, dollar is mildly higher against Euro and Aussie as recovery in commodities lose steam Euro is also soft on Greece concern as yield on two year notes rose to record high. US trade deficit came in wider than expected at -48.2B on surge in oil imports. Canadian trade surplus was slightly wider than expected at CAD 0.6b in March. UK trade deficit widened to GBP -7.7b in March. Japan leading indicator dropped to 99.5 in April. German CPI was finalized at 0.2% mom, 2.4% yoy in April. Trade balance in UK, Canada and US will be released.
The National Bureau of Statistics reported that China's CPI rose 5.3% yoy in April. Despite a ease from 5.4% in March, the level remained elevated and exceeded both market and government expectations. Meanwhile, the government reported that PPI soared 6.8%, retail sales jumped 17.1% and industrial production rose 3.4%. The set of data indicated China continues to face inflation challenges and it's highly likely that the government will announce rate hikes soon to curb the situation from deteriorating. China's tightening may affect market sentiment as it may suffocate demand growth. Yet, macroeconomic indicators have shown so far that China's domestic consumption has remained robust.
GBP/JPY Mid-Day Outlook
Daily Pivots: (S1) 131.70; (P) 132.09; (R1) 132.74; More
http://www.proinvestor.se/aktieforum/380/Sterling-jumps-sharply-on-inflation-forecast-#381
