May 15 Wednesday 11:25 GMT
The euro fell steadily to the six-week low of 1.2850 from 1.2942 (-92 points) against the firm dollar following the weaker than expected German and French gross domestic product in the first quarter that raised speculation that the ECB will offer more monetary easing in the Eurozone.
The German economy grew only by +0.1% versus the median expectation of +0.3% in the first quarter of this year following a contraction of -0.7% in the 4th quarter of 2012. France enters a recession with a repeat downturn of -0.2% in the first quarter GDP compared to -0.2% in the 4th quarter of 2012.
European Central Bank officials have often said they could ease monetary policy further, and perhaps even take the deposit rate below zero, if the economy should slow down. Germany's government has remained cautious on its outlook for the year, lifting its growth projection only slightly in its latest forecast to +0.5% and pointing to the weak sentiment figures as a sign that the recovery will be very gradual.
Cable reversed its gains and eased to 1.5200 after it rallied to 1.5270 from the European session low of 1.5193 (+77 points) when the Bank of England upgraded its estimate of the U.K. economy in its quarterly economic and inflation forecast and from the optimistic comments of BOE governor, Mervyn King when he said that there are good reasons for seeing a U.K. recovery in the next few quarters.
The BOE report showed the 2-year Inflation forecast is falling closer to the target of 2.00% and inflation is seen at 1.92% in 3 years, and CPI is seen edging higher in the coming months. The MPC’s best collective judgment on the U.K. economy is a “modest and sustained recovery.” The 10-year gild yield rose two basis points to 1.92 percent.