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Posted August 2nd, 2013 by Charles Purdy

Bank of England holds fire

Sterling performed poorly during the early part of this week, notably reaching a four month low against the euro and experiencing consistent losses against the US dollar. The only real negative data coming from the UK has been data from the British Retail Consortium showing that average retail prices had dropped for the third month in a row. The cause of the slide was market speculation ahead of yesterday’s Bank of England rate setting meeting. Investors faith in sterling weakened as the possibility of the central bank taking further measures to loosen monetary policy. However, sterling strengthened against the euro and US dollar yesterday as the statement revealed that the £375 billion asset-purchasing target is to remain constant, as is the 0.5% interest rate. On the topic of forward guidance on interest rates, the central bank said that in next week’s inflation report it would “respond to the Chancellor’s request for its assessment of the use of thresholds and forward guidance” which means next Wednesdays release will be of greater importance than normal. Sterling also benefited from better than expected manufacturing data, which is encouraging given that manufacturing growth has been sluggish since the recession. This morning, data from the construction sector is being released and we may see sterling show further signs of appreciating if the figures seen can replicate those for the manufacturing sector. Call your trader now to see if the sterling slide continues.

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