Mid-Day Report: Sterling Weakens after Dovish MPC Vote Split

Sterling weakens across the board today after the release of dovish MPC minutes. The minutes reveal that BoE's decision to keep rates on hold earlier this month was done by a 7-2 vote, instead of an 8-1 vote as markets expected. Blanchflower and Gieve voted for a 25bps rate cut. BoE is still facing the dilemma of rising inflation and slowing growth. However, the minutes also highlighted dissenter's concern about delayed actions. Markets generally expect another 25bps cut in Q2 but opinions on the timing is divided. The dovish vote split raised the chance that it will happen in Apr and further worsening in the financial markets and upcoming economic data, including tomorrow's retail sales will continue to solidify such speculations.

Other data from UK saw claimant count unchanged at 2.5% in Fe, ILO unemployment rate was unchanged at 5.2% in Jan but average earnings growth slowed to 3.7% 3 months yoy. CBI industrial trends orders rose sharply to 7 but markets paid little attention to the data.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.9920; (P) 2.0095; (R1) 2.0239; More

Cable';s rebound was limited at 2.0271. Subsequent fall and break of 1.9943 support suggest that whole decline from 2.0389 is still in progress. At this point, intraday bias will remain on the downside as long as 2.0151 minor resistance holds. As discussed before, sustained break of 1.9943 support will revive the case that rise from 1.9360 has completed. In such case, deeper fall should be seen to 1.9720 support first and then 1.9360 low. Above 2.0151 will turn outlook neutral again.

In the bigger picture, with 2.0363/0464 resistance zone (161.8% projection of 1.9337 to 1.9957 from 1.9360 at 2.0363 and 61.8% retracement of 2.1161 to 1.9337 at 2.0464) still holds, the favored case is still that rise from 1.9337 is merely a correction. The three wave structure of the rise from 1.9337 support this correction case and deeper fall should then be seen to retest this low. However, decisive break of 2.0363/0464 will dampen the above view and encourage a retest of 2.1161 high.

Forex News Digest

U.S. Dollar Extends Declines Against Euro, Japanese Yen in London Trading

Canadian Dollar Falls on Speculation Central Bank Will Follow Fed in Cuts

Citigroup Says Buy Australian Dollar Versus Yen, Commodities Lend Support I

Swiss Franc Advances on Bets Fed Rate Cuts Will Widen Yield Gap With U.S.

Pound Drops Versus Dollar, Euro After BOE Minutes Show 7-2 Split on Rates

Australian, New Zealand Dollars Strengthen on Fed Rate Cut, Stock Gains

Currencies: Dollar's post-Fed bounce fades amid financial-sector worries
Wed, 19 Mar 2008 11:36:00 GMT from MarketWatch

Dollar briefly surges above 100 yen in Tokyo
Wed, 19 Mar 2008 10:42:00 GMT from Xinhua News Agency

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