GBP/USD: Pound Under Pressure as BOE Meets

The British pound is deemed to sustain its losses opposite the US dollar as the Bank of England convenes for its monthly policy meeting today. Although the central bank is widely expected to hold off on any action, yesterday’s report on the services industry likely suggests that easing bias remains firmly in place.

Experts believe the BOE will keep interest rates at a record low 0.5 percent and shy away from any further quantitative easing, having already pumped 375 Million Pounds in the economy. Governor Mervyn King reiterated just last week that there were few emerging signs of economic recovery, while official figures revealed a second upward revision to Gross Domestic Product for the second quarter. Nonetheless, this month’s interest rate meeting comes after a run of disappointing purchasing manager surveys in manufacturing, construction and services, signifying that the economy barely expanded in Q3 after slipping into recession for almost a year.

The Services PMI came in at 52.2 points in September, down from 53.7 points in August and inferior to median estimates of a decline to 53.1. Although new orders rose, the slower conditions meant services employment dropped for the first time since November, with many firms choosing not to replace leavers. Taken the three surveys together, analysts deem that the economy grew by a meager 0.1 percent in the September quarter, likely dampening optimism that the economy recovered strongly during the quarter. As such, another cash injection by the BOE later this year remains a safe bet as the recovery remain fragile, government spending cuts continue to weigh, and the threats from the Euro Zone debt crisis remain. Experts believe that a move could be seriously considered in next month, when the latest 50 Billion Pound addition to the Asset Purchase Facility is set to be completed. With the easing bias seemingly intact, demand for the Sterling is believed to wane further.

Meanwhile in the US, despite a positive release by the Automatic Data Processing Inc. yesterday, today’s Unemployment Claims report is apt to underscore the underlying weakness of the labor sector. 371,000 individuals are said to have filed for jobless benefits last week, higher than the 359,000 count in the previous week. With safe haven bets seen to rise, the Greenback is apt to strengthen, warranting a short position for the GBP/USD.

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