GBP/USD Daily Signal Trend

Increased speculation of a policy shift and a resumption of Chinese yuan appreciation provided some degree of background yen support on expectations of regional currency gains, although the immediate impact was limited.

Sterling continued to exhibit volatility during the week. There were sharp losses following the Bank of England inflation report, but it maintained a generally firm tone for the week as a whole with persistent Euro selling above the 0.90 level while Sterling was able to regain the 1.66 level against the dollar.

The latest RICS house-price and BRC retail sales data was stronger than expected, maintaining the recent trend of generally favourable data. Sterling was, however, undermined on Tuesday by a warning from Ratings agency Fitch that Sterling was vulnerable to a credit-rating downgrade.

In its quarterly inflation report, the Bank of England forecast that inflation would rise significantly over the next few months, but would decline to be slightly below the 2.0% target on a two-year view if interest rates were at expected market levels.

Bank Governor King was again generally downbeat on the economic prospects warning that would need to be a prolonged period of balance-sheet adjustment. King also suggested that the bank was open to all possibilities on quantitative easing, which increased speculation that there could be a further expansion while the Governor also repeated recent comments that Sterling’s decline was helpful.