Sterling Mired Near Record Lows vs Euro

Source: Forexnews.com

The pound continues to struggle versus the euro, slumping to fresh all-time low past the 0.80-figure at 0.8012. The sterling fared better against the greenback, recovering from its 6-week lows and recuperating above the 1.97-level to 1.9750. Although UK economic reports released overnight were better than expectations, markets continue look for the Bank of England to cut rates on Thursday morning.

The February industrial production edged out expectations, improving by 0.3% versus a 0.1% decline in the previous month and up by 1.3% compared with a 0.4% increase a year earlier. Meanwhile, the manufacturing output also beat out consensus forecasts, holding steady at 0.4% on a monthly basis and rising to 1.9% compared with a 0.6% a year earlier. Recall the sterling fell sharply following yesterday’s disappointing Halifax housing price survey, reaffirming sentiment that the BoE will soon ease policy to stimulate the economy.

In the session ahead, traders will look ahead to the February trade deficit, which is seen unchanged at 7.5 billion pounds. The non-EU deficit is expected to edge up to 4.3 billion pounds, from 4.29 billion pounds. Nonetheless, the key highlight will be the Bank of England’s monetary policy announcement at 7:00 AM. The Bank is largely expected to ease by at least 25-basis points to 5.0%. In addition to close focus on the magnitude of the rate move, traders will also closely scrutinize the accompanying Bank statement for clues on whether additional rate moves in the coming months can be expected.

We look for the sterling to remain softer against the euro and dollar heading into the meeting. Further, the BoE is likely to issue a more dovish assessment on the economy in light of housing and credit conditions in the UK, thereby pressuring the pound following the meeting.