The Pound tumbled to its lowest-level in three-weeks against the US Dollar on Wednesday after the Bank of England left its growth forecasts relatively unchanged and hinted that it was in no rush to increase interest rates.
The BoE said in its quarterly inflation report that it expects yearly inflation to edge closer to its target of 2% over the next three years if interest rates increase in line with economist forecasts.
It added that it now expects the UK economy to grow by 2.9% in 2015 and expects this year’s rate of growth to remain at it’s previously forecast level of 3.4%.
“The exact timing of a rate increase will inevitably be the subject of considerable speculation and interest. The ultimate answer will depend on the evolution of the economy, particularly the degree of slack, the prospects fo its absoption, and the broader inflation outlook,” said BoE governor Mark Carney.
The Bank expects unemployment to fall faster than previously expected and said that the overall jobless rate could decline to 5.9% within two years. Previously it had forecast a fall to 6.4%.
The Pound to US Dollar exchange rate (GBP/USD) is currently trading around 1.6749.
A report released earlier in the session showed that the UK’s unemployment rate fell from 6.9% to 6.8% and edged further beyond the BoE’s previous target of 7%.
Following the release of that report the Pound was able to push higher against most peers.
Those gains were short-lived however as a separate report showed that that average weekly earnings rose by 1.7% on a year-on-year basis in the first quarter of 2014, but excluding bonuses average earnings only rose by 1.3% during the quarter, and just 1.0% in March.
Both figures were below economist forecasts.
In the USA a report showed that producer prices soared by their biggest margin in more than a year in April. The cost of trade services and food climbed more than expected.
According to the US Labour Department, its seasonally adjusted Producer Price Index advanced to 0.6%, the sharpest rise seen since September 2012.
Economists had been expecting PPI to rise by 0.2%.
On a year on year basis PPI increased by 2.1%, the biggest rise seen since March 2012.
A separate report showed that applications for US mortgages increased last week. According to the Mortgage Bankers Association, application activity increased by 3.6% last week.
Pound to US Dollar Update – 15/05/14
Sterling slumped to a one-month low against the US Dollar as the currency was weighed down by yesterday’s comments by the Bank of England.
Investors were disappointed after the BoE said that it would not be raising interest rates this year and did not revise this year’s growth expectations higher.
The Bank also said that there is still scope to further reduce slack in the economy before hiking interest rates and reiterated that when it does raise rates it would happen at a slow and gradual pace.
Sterling is likely to remain down against the ‘Greenback’ for the rest of Thursday due to a lack of UK data releases and a plethora of US related data.
Later in the session the latest US jobless claims, manufacturing and industrial production data is due for release.
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