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Pound rallies on BOE, Euro pushed lower

February 12, 2014

The U.S dollar fell to its lowest level in around two weeks against the pound Wednesday, as the Bank of England upgraded its growth forecasts and improved its forward guidance policy. The Euro was notably lower against other major currencies, after comments by a senior European Central Bank official. GBP/USD struck $1.6587, its highest since January 29, and was last at$1.6585. The pound rallied after the Bank of England laid out a new forward guidance policy today, and raised this year's economic growth forecasts. The BOE said that it will maintain interest rates unchanged at record lows of 0.5% for at least another year. The Bank said it will not alter rates until the spare capacity in the U.K. economy has been absorbed completely, and according to the Bank, this will take until 2015 to be achieved. The BOE also revised its economic growth forecast for U.K. for 2014 to 3.4% from 2.8%. Euro The Euro's massive losses against the pound also took its toll on the single currency's stance against other majors. EUR/GBP fell 1.13% to 0.81942, slightly above its one-year low of 0.8167 hit on January 22. The EUR/USD was last down 0.33% at $1.35923, after dropping to 1.35611 earlier. The Euro was damaged by weak economic data and comments from ECB Executive Board member Benoit Coeure, who hinted that the Bank is "very seriously" considering a negative deposit rate. The Deposit rate is the rate at which banks place surplus funds with the central bank, which is now at zero percent. Industrial output fell 0.7% in December in the Eurozone, much worse than a 0.3% fall expectations, and after a negatively revised 1.6% rise the month before. Moreover, the Dollar index gained 0.06% to 80.68, mainly because of the Euro's fall. The Dollar index measures the value of the U.S. dollar against a basket of other major currencies, such as the yen, Euro, and the Pound. China Trade Data Earlier in the day, the Australian and the New Zealand dollars both hit one-month highs, as strong trade data from China eased worries about growth prospects in the world's second largest economy, and boosted demand for riskier assets, noting down that China is Australia's biggest export market. China's trade data were better than estimated for January, as import growth struck a six-month high, as it jumped 10%, while exports soared 10.6%, topping estimates for 2% gains, indicating China's economy is far from slowing down. The Australian Dollar hit a high of $0.90661, the higher since January 13, before dropping down to $.090288, lower on the day, The New Zealand dollar hit a high of $0.83674 earlier in the day, before falling back to $0.83132.

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Source: Financial Markets

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