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Forex Flash: UK service PMI in focus for pound ahead of BoE meeting - BTMU

Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the release of the service PMI surveys for February will be in focus for Europe this morning.

In particular, he feels that the UK service PMI survey could prove more market moving than normal given that it appears a close call as to whether the BoE will announce another GBP25.0 billion gilt purchase expansion on Thursday. He writes, “The release yesterday of the latest FLS usage and lending report for Q4 proved somewhat underwhelming with banks net lending to the UK households and PNFCs still contracting by GBP2.43 billion which at the margin strengthens the case to revert back to implementing more QE with the risk still present that the UK economy may contract again in Q1.”

Hardman comments that the negative impact of further QE from the BoE upon the pound in the near-term maybe less clear cut given that it has already fallen sharply by 6.0% on a trade-weighted basis during early 2013. The latest IMM report also revealed that speculative short pound positions have reached their highest level since October 2011 highlighting that it is becoming a very crowded trade.

Forex: EUR/GBP falls to 0.8612/13 after Spanish PMI

The EUR/GBP has recently fallen off its session highs of 0.8634 during European trading, on the heels of Spanish data, the first in a line of such releases today. The pair fell nearly 20-pips in recent moments to cross over into negative territory at 0.8612/13.
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Forex Flash: BoE might increase QE on disappointing UK Services PMI – TD Securities

TD Securities believe today's services PMI results will be key for Thursday’s BoE decision on whether to extend QE: “After the weakness in both the manufacturing and construction PMIs already this month, we think that if the services PMI comes in below our forecast of 50.5 (market 51.0) then the BoE will increase QE by at least £25bn at this week’s meeting (in addition to the £6.6bn reinvestment from the APF’s March 2013 redemption), as the economy would no longer be showing the “muted pace of expansion” that it had assumed, and the Feb MPC vote was already close with 3 of 9 members (including Gov King) voting for QE”, wrote analyst Alvin Pontoh. Steady figures should give the BoE more time to reconsider.
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