Archived IMT (2011.03.28)

500 pips in 5 days is quite a move for GBPUSD. Why would a currency fall so much despite having at least 50-bps of rate hikes priced in? The UK Budget was deemed mostly neutral and borrowing requirements were in line w/ PM Cameron's initial plans. But the problem lies with the growth outlook, which was tacitly revised down by the latest Bank of England minutes. And although the BoE raised its CPI forecast to as high 5%, markets remain unconvinced with the BoEs ability to raise rates without disrupting an economy thats teetering on the edge of double-dip recession. The Office for Budget Responsibility lowered its 2011 GDP forecast to 1.7% from the previous 2.1%. Tomorrows final release of UK Q4 GDP seen at -0.6% from -0.5%. Also due tomorrow is data on M4, net lending and mortgage approvals. ===== GBPUSD trendline support remains none other than the 11-month support at 1.5850. With EUR pressured by ESM uncertainty and Portugals borrowing needs, EURGBP may see its gains capped at 0.8830s.