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Pound Dollar – Interest Rates March 5th 2009

GBP/USD Daily Candle Chart - 5th March 2009

Today of course is all about the fundamental news and economic news, with interest rate decisions both in the UK and Europe. The MPC is up first, announcing it’s decision at noon here in London, with Europe following 45 minutes later.  It is widely expected that the basic rate in the UK will be cut once again from the current level of 1%, to an unprecedented 0.5%, akin to the levels reached in Japan in the banking crisis of the 1990’s and whose effects are still being felt today almost 20 years later. What is more interesting however, and certain to have a greater impact on the pound, is the so-called quantitative easing of the money supply which is likely to be announced at the same time. In simple terms all this means is that the Bank of England will decide to print more money in a desperate effort to revive the economy, and to introduce an element of inflation as a counter to the current deflation that is seeing demand and prices falling far and fast. Clearly this is uncharted territory, and no one, either in the industry or outside, has any idea what the effects may be. Leave the printing presses running too long, and we could see queues of people at the supermarkets with wheelbarrows of money, as happened in Germany in the mid 20’s, with rampant inflation – turn them off too quickly and the effect will be negligible. Given the MPC’s decision making ability so far, it seems unlikely they have any better idea then the rest of  us, mere mortals, but one thing is for sure – they are rapidly running out of ideas and space to manoeuvre. The only thing I can say for certain is that the decision today will at least move the pound dollar currency pair, and we could see a breakout from the current trading range.

Yesterday’s up candle, failed to penetrate the 9 day moving average, and we still have all three moving averages pointing lower, and for any confirmed trend or reversal we will need to see one of the following take place. Either a break above the current consolidation, and past the 1.5000 region an beyond, or alternatively a fall to the 1.3500 region and a retest of this level. If this region is penetrated then we could see even further weakness in the UK pound, possibly as low as 1.2900 – so today should be interesting! All the news will be covered on the live news feed, with the latest currency news on the TV video channel, and all the announcements are explained on the economic calendar.

The short term and medium term is sideways, the long term outlook is bearish.