Mid-Day Report: Sterling Dives after Job Data, BoE Minutes

Sterling drops sharply today as unemployment rate unexpectedly rose to 7.9% in February while total unemployment jumped to 2.56m. Among the unemployed, 900k people have been out of work more more than a year. Nonetheless, claimant counts dropped by -7k in March to 1.53m. BoE minutes revealed that policy makers voted unanimously to keep rates unchanged at 0.50% during April meeting. Meanwhile, the MPC voted 6-3 to keep the target of asset purchase program unchanged at GBP 375, with governor King and two other members voted for GBP 25b increase. BoE noted in the minutes that the "highly stimulatory" had already drifted up medium term inflation expectation sin recent months and "further easing might exacerbate this movement and prompt renewed weakness in sterling, with implications for wages and prices."

Other data released today saw Swiss ZEW improved markedly from 2.3 to 20 in April. New Zealand CPI rose less than expected by 0.4% qoq in Q1. Australia Westpac leading indicator rose 0.6% mom in February. Japan consumer confidence rose less than expected to 44.8 in March. BoC rate decision will be the next focus and is expected to leave rates unchanged at 1.00%. Fed will also release Beige Book economic report later in US afternoon.

In a report published yesterday, IMF lowered global growth forecast to 3.3% in 2013, down from January's projection of 3.5%. Nonetheless, global growth forecast was left unchanged at 4% in 2014. IMF noted that "global prospects have improved again but the road to recovery in the advanced economies will remain bumpy," and urged "policy makers cannot afford to relax their efforts." US growth projection in 2013 was revised to 1.9%, down from 2.1%. US is expected to grow 3% in 2014.

Eurozone economy is expected to contract -0.3% this year and grow 1.1% in 2014. Canada is expected to grow 1.5%, down from prior projection of 2%. Regarding Eurozone, while IMF expected Germany to growth by 0.6% in 2013, France is expected to contract by -0.1%. Spain and Italy are both expected to contract by -1.5%. It noted that "activity in the euro area will pick up very gradually, helped by appreciably less fiscal drag and some easing of lending conditions." Chief economist Blanchard urged European to "do everything it can to strengthen private demand," with "aggressive monetary policy and getting the banking system to be stronger."

Regarding Japan, IMF expects 2013 growth to be 1.6% and 2014 growth to be 1.4%, up from prior projection of 0.4% and 0.7% respectively. Also, it expects 0.1% inflation in 2013 and 3.0% inflation in 2014. Note if that happens, BoJ would be overshooting its 2% inflation target. IMF noted that "after many years of deflation, and little or no growth, the new government has announced a new policy, based on aggressive quantitative easing, a positive inflation target, fiscal stimulus, and structural reforms," and "this policy will boost growth in the short term". Chief economist Blanchard said that BoJ's policy is "appropriate" even though yen has "depreciated by a large amount over the recent past". But he warned that "given the very high level of public debt, embarking on the fiscal stimulus in the absence of a medium-run fiscal consolidation plan is risky."

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.5295; (P) 1.5337; (R1) 1.5401; More...

GBP/USD drops sharply today and the breach of 1.5238 minor support argues that rebound from 1.4830 has completed at 1.5411 already, ahead of mentioned 38.2% retracement of 1.6380 to 1.4830 at 1.5422. Intraday bias is back on the downside for 1.5032 support first. Break will suggest that whole fall from 1.6380 is resuming for another low below 1.4830.

In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidations to long term down trend from 2.1161 and could have completed as a triangle pattern at 1.6380. Focus is now on 1.4229 support and sustained break there should bring long term down trend resumption for a new low below 1.3503. However, strong rebound from or above 1.4229 will indicate that the whole pattern from 1.3503 is still in progress.

IMOH, Clement I.
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