The Bank of England (BOE) announced Thursday morning that it would maintain its emergency bond-purchase plan and keep interest rates unchanged.  This decision out of the BOE was 100% in line with market expectations and, therefore, did not cause any huge movements in the currency market.  The pound, however, did fall during London trading Thursday morning as investors remain cautious amidst deteriorating global economic conditions.

The Monetary Policy Committee unanimously decided to keep the target for bond holdings at 200 billion pounds and the interest was kept at 0.5 percent.  Along with these expected monetary policy decisions, the BOE Minutes did show that the BOE is giving substantial consideration to further quantitative easing measures.  The global economy is taking a hit at the moment, and the U.K. is no exception.  Prime Minister Cameron's administration has been doling out massive public spending cuts in order to bring the U.K. deficit under control.  These spending cuts are expected to weigh heavily on economic growth in the 2nd half of 2010 and have many analysts anticipating that the BOE will institute another round of QE.  This analyst expectation was confirmed in the BOE Minutes

Pound

The pound fell throughout London trading Thursday morning after staging a strong run above 1.5500 during New York trading on Wednesday.  After reaching a HI of 1.5532 around 11:00 am est on Wednesday, the pound slowly began to fall before finally reaching a low of 1.5375 during London trading.
 Note: Past performance is not indicative of future results.
Once the pound support during the London session at 1.5375, it began to turn around.  This spot is actually the 62% fib retracement of a larger move on the 4 Hour, so we may see a bit of pound strength in the near term.  Also, this morning key economic data out of the U.S. was quite positive with Unemployment Claims coming out at 451k versus the expected 470k and Trade Balance posting at -42.8B versus the expected -47.4B.  These good numbers out of the U.S. will help support risk appetite in the market as fears of a double-dip recession are once again fought off.

What is the Data Saying?

Currently, investors and analysts are trying to decipher whether the global economy is headed for another period of recession or for an extended period of slow economic growth.  Although there are valid arguments on both sides of the picture, economic data is not currently supporting the notion of a double-dip recession.  Instead, the most likely scenario is that developed nations will be experiencing very slow growth over the next 6-12 months.

Several Central Banks including Australia, the U.K. and the EuroZone have voiced concerns surrounding the U.S. economy.  These other economies recognize that the U.S. economic struggle is a major threat to the entire global recovery.  If the U.S. slows considerably, it will weigh heavily on every developed nation in the world due to the intensive globalization that has interconnected our economies.

Today's good economic data is yet another piece of cautious optimism that shows the U.S. economy is moving forward, albeit at a very slow pace, and this positive news should help support risk appetite in financial markets and the economy, which is absolutely essential for strong, self-sustaining economic recovery.

Euro

The euro is continuing to move in a tight 90 pip range between 1.2760 and 1.2670.  Buyers came in with fury this morning during the London session and pushed the euro up from its lows down at the bottom of the range up to 1.2728 in just over an hour, but the buyers could not sustain higher prices.

Overall, market participants seem to be very undecided on where the market is headed.  A general lack of conviction seems to be defining the currency market at the moment.  September is known to be a very volatile month for financial markets.  After the very light volume months of July and August, trading tends to pick up strongly in September as everyone is back from summer vacation and ready to take positions and, hopefully, make money.  During 2007, 2008, and 2009, the month of the September proved to be very volatile as price moved beyond its average monthly range during each of those three years.

Currently, the risk seems to be to the downside in the forex market.  A slowing U.S. economy is combining with overall deteriorating economic conditions throughout the world.  We also have increasing bond yield spreads in the EuroZone and continuing talk of problems in Greece, Portugal, and Spain.  However, none of these concerns has been strong enough to truly tip the market into strong risk aversion mode.  On the other hand, no economic data has been quite positive enough to cause a true rally of risk appetite.  Unfortunately, we are currently in "wait and see" mode on the U.S. Dollar, Euro, and Pound.

Federal Reserve Beige Book

The Beige Book report came out Wednesday afternoon without too many surprises.  The report basically resounded with the same message the Fed has released through the FOMC Minutes earlier this week and Fed Chairman Ben Bernanke's speeches lately-the U.S. recovery is slowing down.  Not much of a surprise.  The Beige Book report did use new verbiage, saying the economic recovery was decelerating.  It is apparent the Federal Reserve is worried about the current recovery.

The euro and pound are both currently rallying strong during mid-New York session on the heels of the positive U.S. news.  However, on the higher timeframes both of these pairs are still in very tight ranges on the 4 Hour and Daily Charts.  Most analysts are expecting a strong bout of risk aversion this fall, and it could begin this month.  However, as long as key economic data continues to remain mixed, with some positive signs and some negative signs, the forex market will most likely continue to move in a bit of sideways action.  Buyers and sellers want to see some clear direction before committing large positions one way or the other.