Sterling stable in European part of the Friday's session

Friday, May 06 2016

There are no data releases from the UK with Sterling being stable around 1.45 handle in a quite European part of the session. With Britain’s European Union referendum looming, the Bank of England governor will present economic projections to guide investors on an outlook that has rarely been more clouded in doubt. He also has to balance how far to stray into the fraught political battle against the prospect of criticism for saying too little. “I can’t imagine the BOE would want to give the markets any kind of hostage to fortune,” said Peter Dixon, an economist at Commerzbank AG in London.

“This will be a bit of an interim forecast which says growth is modest, inflation is muted but marginally picking up moderately, and we’ll all be dancing around the elephant in the room.” The BOE also has past form in side stepping hard-to-calibrate risks in its forecasts. In 2011, then Governor Mervyn King drew criticism after saying policy makers had no meaningful way to quantify concerns about the euro-area sovereign debt crisis in their projections and therefore excluded them. While officials can’t completely ignore the short-term adverse effects of the referendum, those factors could dissipate quickly if there’s a vote to remain. In that scenario, the inflation-boosting impact from a weaker pound and lower market rates may have a greater bearing and could prompt a reassessment of the rate outlook.

Sterling is currently being traded few points above 1.45 level. Pair is likely to find support around 1.4450 handle and resistance above 1.4550 level. Later today, in the US session, NFP figures will be released.

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