If you’re trading Mr. British Pound and Mr. Euro on the forex dance floor and are wondering what is their next dance moves, better read up this week’s recap on economic conditions hot gossips out of these dudes’ countries.
1- Inflation at 0% for a second month
Inflation was key subject covered in the press conference. The BoE see us at near zero for most of the year, but beginning an upturn towards the very end of it, as oil and food price falls fall out of the readings. The bank targets a 2% inflation
2- Interest rate hike is put off till 2016
The delayed inflation growth should lead to the first interest rate rises in mid 2016 and Mr Carney sees rates at around 1.5% in three years’ time.
According to MPC members, any potential interest rate increases would be done gradually, given the persistence of the headwinds facing the U.K. economy these days. They added that additional uncertainties could keep the benchmark rate below the average historical levels for some time.
3- GDP forecasts were revised slightly lower
GDP forecasts were revised slightly lower for the year to 2.6% down from 2.9%. Bank of England governor, Mark Carney remained resolute that the UK economy is still in a strong place, despite growth numbers from the last quarter falling well below his expectations.
4- Slow growth in wages and productivity
One factor that’s keeping a lid on inflation is the slow growth in wages, as the rise in part-time and poor-quality jobs has kept average earnings low. With businesses able to cut back on workers’ pay, they can be able to stay profitable without increasing the prices of goods or services they provide. From the workers’ standpoint, without any foreseeable increase in wages, there is very little incentive to put in more productive hours.
5- It’s all Europe’s Fault
The Governor is confident in the UK’s prospects, but has warned that Europe still remains the biggest risk to the outlook on this side of the Channel. He also weighed in on the immigration debate, saying that migrant workers were the reason that wage growth remained so subdued, with low paid work being taken by people coming into the UK and putting up with low wages, which in turn is dragging down the overall wage growth numbers. This has led the Bank to revise down their wage forecasts from 3.5% this year to 2.5%.
6- GBP/USD Technical Analysis
As I covered last night, the pair remains on the upside with weakening USD. Click here to view trading strategy.