The British Pound is trading a little better after a report showed the U.K. trade deficit-narrowed more than analysts expected in January led by a record surge in exports.
The surprise this week in the Forex markets is the inability of the U.S. Dollar to attract fresh investors given the escalating problems in the Middle East and North Africa. With crude oil and gold rising as traders take protection, many traders thought the Greenback would benefit from flight-to-safety buying.
The U.S. Dollar is trading lower against most currencies this morning with the exception of the British Pound. Earlier in the week it was reported that U.K. inflation came out on target at 4.0% but two times the 2.0% mandate.
The British Pound is trading flat to slightly higher this morning after it was reported that the U.K. economy unexpectedly contracted in the final quarter of 2010. Fourth-quarter gross domestic product declined by 0.5% compared to the previous quarter. This was the first decline since the third quarter of 2009. The report also severely missed pre-report forecasts calling for a 0.4% rise.
After changing the main trend to up on the daily chart on the breakout through 1.5911, the British Pound appears to be shifting to a corrective mode which may mean the start of a short-term correction to 1.5702 to 1.5618.
The British Pound rebounded against the Dollar after recovering from a sharp sell-off on Tuesday into a key 50% price level at 1.5974. Additional support was provided by an uptrending Gann angle at 1.5950.
The British Pound strengthened this morning after the Bank of England said inflation may continue to accelerate above its 2 percent target, reducing the chances that the central bank will reignite asset purchases.
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British Pound investors pared positions in the Sterling, driving the market sharply lower into a major 50% level. Cable traders decided to liquidate long positions ahead of tomorrow’s release of the Bank of England minutes.
