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Pound Set for Weekly Drop as BOE’s Miles Calls for More Stimulus

Pound Set for Weekly Drop as BOE’s Miles Calls for More Stimulus

The pound was set for a second weekly drop versus the dollar after Bank of England policy maker David Miles said the central bank should increase stimulus and look at new measures to boost Britain’s economy. Sterling was little changed against the euro before a report next week that analysts said will show the U.K. economy contracted in the fourth quarter of 2012, in line with an initial estimate. Miles, along with Governor Mervyn King and Paul Fisher, was in the minority on the Monetary Policy Committee, when he voted to increase quantitative easing by 25 billion pounds to 400 billion pounds.

Meanwhile, the dollar dangled near a 5-1/2-month high against a basket of currencies on Friday, helped by doubts over just how long the U.S. Federal Reserve will keep its quantitative easing in place. The euro tumbled to a six-week low against the dollar on disappointing euro zone economic data and uncertainty ahead of Italy’s election this weekend, though the common currency managed to hold above a key retracement level. Concerns that the Fed may stop providing a flood of cash to banks boosted the dollar, at the expense of many other assets, ranging from the euro and other risk currencies to stocks and commodities. The anxiety that Italy’s national election this weekend could lead to a fragmented parliament and a weak government capped the euro.

On the FX markets, GBP/USD settled the session little changed as broad based EUR weakness following the release of another round of disappointing macro economic data prompted EUR diversification flows. However the outlook for the pair remains bearish and the latest bounce is unlikely to prove sustainable. In terms of technical levels, supports are seen at 1.5192 which is the 62% retracement of the June 2010 to April 2011 bull trade, followed by 1.5125 and then at 1.4949. On the other hand, resistance levels are seen at 1.5292, 1.5322 and then at 1.5352.

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