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King Confronts Triple-Dip Risk as Snow Freezes U.K. Economy

King Confronts Triple-Dip Risk as Snow Freezes U.K. Economy

Britain’s cold snap disruptions risks leaving Bank of England Governor Mervyn King with the danger of a triple-dip recession just as he counts down his final months in office. Heavy snow affecting most of the country threatens to hurt retail sales and construction after a contraction forecast by economists for the last three months of 2012. The weak economy is undermining the government’s plans to reduce the budget deficit and pushing up borrowing costs.

Meanwhile, European stocks were lower on Tuesday, as discussions on financial aid to banks by the euro zone’s bailout fund, the European Stability Mechanism, weighed on market sentiment. Sentiment improved earlier, after the Euro group of euro zone finance ministers gave the green light on Monday for the payout of EUR9.2 billion to Greece this month, indicating greater confidence in Athens’ ability to press ahead with initiatives outlined in the nation’s international aid program. But investors remained cautious, euro zone ministers were still seeking an agreement on how and when the European Stability Mechanism can bypass governments and provide direct help to banks.

On the Fx market, GBP/USD settled the session little changed, as market participants looked forward to the release of the most recent MPC minutes, as well as the first release of Q4 GDP data on Friday. In his first interview the newest BoE MPC member McCafferty said he is skeptical on QE and thinks ‘the economy is growing modestly’ at 0.3% a quarter. In terms of other UK related commentary, the UK ITEM club, which uses the Treasury’s own models, predicts Britain will ‘muddle through’ with growth of 0.9% this year, which is below the 1.2% OBR forecast. However, Treasury sources suggest the economy is showing signs of improvement. In terms of technical levels, supports are seen at  1.5838/26 and then at 1.5800. On the other hand, resistance levels are seen at the 200DMA line at 1.5908, the 30-day lower Bollinger level at 1.5928 and then at the psychologically important 1.6000

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