Daily Market Outlook by AceTrader

Market Review – 12/05/2010 21:37GMT

Cable tumbles on BoE King’s dovish comments after release of inflation report

Although the British pound rallied above Tuesday’s high of 1.5005 to 1.5046 in European morning, the pair swiftly pared all its intra-day gains and tumbled to as low as 1.4819 after Bank of England stated that risks to the U.K. economic recovery have increased and Governor Mervyn King said the central bank would not rule out further asset purchases following the release of BoE inflation report on Wednesday.

King also said that financial crisis is far from over and banking crisis has turned into potential sovereign debt crisis and these comments also pressured cable. In other news, Britain’s new Prime Minister David Cameron secured a power-sharing deal between his Conservative Party and the Liberal Democrats with Liberal Democrat leader Nick Clegg becoming deputy premier, ending days of political uncertainty.   
The single currency remained under pressure on worries that the budget cuts required by Europe’s 750 billion euro bailout package would slow down the region’s economic recovery. Euro weakened to an intra-day low of 1.2605 in Asian afternoon but then rebounded strongly to 1.2740 on active short-covering after news that European central banks were buying Portugal, Ireland and Greece government bonds and Spain announced more spending cuts. Euro then retreated from said 1.2740 high and traded with a soft bias in NY afternoon. In other news, Portugal sold 1 billion euros ($1.27 billion) in 10-year bonds in the market with demand exceeding supply. The government officials said Portugal would not need to draw on the funds in the euro zone rescue package.  
On economic front, German GDP increased by 0.2% q/q and 1.7%y/y in Q1, stronger than the forecasts of 0.0% q/q and 1.2% y/y as well as the upwardly revised previous readings of 0.2% q/q and -1.5% y/y. EU’s GDP in Q1 came in at 0.2% q/q and 0.5% y/y as expected. EU’s industrial production in March rose by 1.3% m/m and 6.9% y/y versus economists’ forecasts of 1.0% and 6.1%.  
Gold rose again on Wednesday and hit a fresh all-time high at 1248.10 an ounce in NY session as worries on European debt crisis prompted investors to flock to gold as a safe-haven asset.   
Economic data to be released on Thursday include: U.K. N’wide Consumer Confidence , Japan Current account , Australia Employment change , Australia Unemployment rate , Japan Economic watch DI , U.K. Trade balance, EU ECB Monthly Report, U.S. Export price index , U.S. Import price index and U.S. Jobless claims.