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Forex News: GBP/USD Strengthens Due to BOE Comments on Inflation Rate Increases

Aug 10 • Market Analysis • 1793 Views • Comments Off on Forex News: GBP/USD Strengthens Due to BOE Comments on Inflation Rate Increases

UK forex news from the Bank of England (BoE) caused GBP/USD trading to end at the 1.5655 level, higher than the low of 1.5644 that it had recorded during the August 8 trading. The UK pound had earlier touched that low due to higher-than-expected trade deficit figures although it attempted to stabilize at the 1.5650 level.

Bank of England (BoE) governor Mervyn King had commented during a press conference, announcing the release of its quarterly inflation report that a reduction in interest rates at this time was unlikely since they could hurt financial institutions. In its report, the BoE cut its growth forecast for the country, which continued to slip into recession. Factors dragging down UK economic growth included weak local and Eurozone demand as well as increased financial consolidation.

Forex news revealed that the June trade deficit grew to £4.3 billion from £2.7 billion in the previous month. The rise was driven by an increase in the UK’s trade deficit with non-EU countries, which increased to £5.2 billion from £3.9 billion in May. The deficit was caused by a decline in exports to non-EU countries, which experienced a 9.6% fall to £11.9 billion, while import figures remained flat at £17.1 billion. These declines included lower exports in oil, particularly to the US, by chemicals to all of the UK’s non-EU trading partners and car production to countries such as China.

BoE Governor Mervyn King also noted that the increase in private market funding costs is a cause for concern, despite attempts by the BoE to spur credit growth by offering banks new rounds of cheap financing. These growing costs are a result of market sentiment that the UK is becoming the latest EU country to fall to the sovereign debt crisis. China has reported that the EU is buying fewer goods from it, resulting in lower export and overall trade figures. Europe is also seen to be largely responsible for lower US growth over the past few quarters.

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In August 7 trading, the GBP/USD had strengthened on forex news of stronger-than –anticipated retail sales. The start of the London Olympics drove the sale of food and drinks, according to data from the British Retail Consortium. Although overall retail sales grew 0.1% for July from a year earlier, online retail sales increased by 15.6% for the same period due to colder weather that drove more consumers to shop from home.

Also helping the pound sterling gain against the US dollar was forex news that UK industrial production dropped lower than expected. Manufacturing production fell by 2.9% in June, substantially lower than the 4.3% anticipated as well as the 4.3% drop recorded in the same period last year. Meanwhile, overall industrial production fell by 2.5%, which was better than the expected 3.5% fall. The decline was attributed to the extra holidays declared due to celebrations for the Queen’s Diamond Jubilee. The latest figures show that industrial production has now fallen for fifteen consecutive months.

The BoE warned that the increased strength of the UK pound is seen to drag down growth, as this would restrain the country’s exports.

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