The Pound may come under pressure if the BoE decide not to lift interest rates this Thursday
Following on from last week, The Dollar came under increased pressure on Friday following the release of the advanced GDP report for the second quarter and as widely expected, economic growth has slowed significantly in the States from 5.6% in the first quarter to just 2.5% in the second and it now looks evermore likely that the Federal Reserve will hold interest rates at 5.25% at the next FOMC rate announcement on the 8th August. As a result, the Dollar declined against the majors, closing back above 1.8600 versus the Pound and with a host of significant economic data released this week, we can anticipate further market volatility in the build up to the Fed's announcement. The focus this week in terms of U.S data with be the Nonfarm Payrolls report on Friday where it is anticipated that the economy added 150,000 new jobs in July while the unemployment rate is predicted to stay unchanged at 4.6%. There is some significant data released this afternoon in the States with the Chicago PMI widely expected to remain at an elevated level in the figures for July with manufacturing and production showing a modest decline towards 56.0 from 56.6 in June.
Without doubt, the focus this week will be on the ECB interest rate announcement on Thursday where it is widely anticipated that the policy makers will lift interest rates to 3.0% in August as the Euro-zone economy continues to show robust signs of growth. In addition, the accompanying press conference should provide an indication of the ECB's intention to continue monetary tightening in the in the third and fourth quarters with many investor's pricing in two further rate hikes before the turn of the year as energy prices continue to soar and inflation remains outside of the Central Bank's comfort zone. Therefore, the economic data released today will take on added significance as the initial estimate for July inflation is widely expected to remain high at 2.4%, showing just a modest drop from the previous month, which may prompt the ECB to continue raising interest rates. In addition, the Euro-zone sentiment index for consumer and industrial confidence is also released today and forecasters are anticipating a strong figure and sentiment continues to remain high following the staging of the World Cup in the region this Summer.
The Pound has shrugged off some mixed data in the UK over the past week and the Bank of England's interest rate announcement on Thursday is a close call with many investor's anticipating a possible rise in UK interest rates in August for the first time in 12 months as faster economic growth and higher inflation may prompt the BoE to tighten rates quicker than previously expected. There is a plethora of significant data released in the UK this week to accompany the rate announcement, most notably the CIPS Manufacturing and Services surveys, while elsewhere UK consumer confidence is widely expected to remain unchanged in July. In addition, Consumer Credit for June is also released this morning and forecasters are anticipating that Net mortgage lending has risen while mortgage approvals have also increased from 117,000 in May.
Data Released 31st July
UK 10:30 Consumer Confidence (July) UK 09:30 Consumer Credit (June) - Net Mortgage Lending - Mortgage Approvals
EU 10:00 Sentiment Index (July) - Industrial Confidence - Consumer Confidence
The Dollar weakens significantly after advanced GDP growth in the second quarter slows to 2.5% which was under expectations
Good Afternoon,
The Dollar has been trading around 1.8550 versus the Pound for the majority of this morning's session as we build up to the release of the PCE Deflator and the advanced GDP report in the States, which is the Fed's preferred measure for U.S inflation. It was widely expected that economic growth would slow significantly to around 3.0% in the second quarter from 5.6% previously. The Deflator actually came out at 3.3% while GDP slowed to 2.5% which was under expectations and it looks as though the Fed will now hold interest rates at 5.25% on the 8th August. The Dollar has weakened significantly to trade back above 1.8600 on the release of the figure.
The Dollar may weaken further as economic growth in the U.S may slow to 3.0%
The volatility surrounding the U.S Dollar continued yesterday as a report from the Federal Reserve showed that U.S economic growth was slowing in the second half of the year while inflationary pressures are at modest level. Therefore, the possibility of a further tightening of U.S interest rates next month looks increasingly unlikely and that sentiment is weighing heavily on the Dollar as we trade uptowards 1.8700 against the Pound. However, there was some positive economic data released in the States yesterday afternoon as orders for U.S made durable goods rose by more than forecast in June, which provides an indication that manufacturing is likely to remain at an elevated level while the housing market continues to show signs of cooling. Following the Fed's aggressive stance towards monetary tightening, the housing market has continued to decline and that was emphasised in the data released yesterday as the sales of new homes fell by 3.0% in June, which leaves a record number of unsold homes floating on the market and may prompt builders to shed prices.
There is some hugely significant inflation data released this afternoon in the States, which has the potential to influence the Fed's decision on rates next month. The rate of economic growth is widely expected to decelerate to 3.0% in the second quarter from 5.6% previously and therefore justifies the Fed's intention to hold interest rates at 5.25%. However, while a slowdown in growth is anticipated the GDP deflator and Employment Cost Index will be watched closely for direction on U.S inflation and both are expected to accelerate in the second quarter.
The Euro has looked relatively strong in recent sessions but we closed above 1.4600 against the Pound last night following a sparse supply of economic data released. However, growth in the M3 money supply into the Euro-zone is widely expected to remain at an elevated level in June, which may prompt the ECB to continue raising interest rates. Elsewhere, French unemployment is expected to remain unchanged at 9.1% in June while consumer confidence is widely anticipated to show a marginal decrease. The ECB interest rate announcement is less than a week away and forecasters are anticipating that the Central Bank will hike rates by a further quarter-point for the fourth time this year and take their benchmark interest rate upto 3%.
Data Released 27th July
EU 09:00 M3 Money Supply (June) - 3 month moving average
The Euro strengthens against the majors despite German Business Confidence dropping by more than expected in July
The Euro has been making gains against the Pound this week after we failed to break the resistance level at 1.4675. As we predicted, we have subsequently continued to trade down under 1.4600 and the Euro remained firm yesterday despite business confidence in Germany dropping by more than expected in July. The Ifo Index reported that confidence in Europe's largest economy declined to 105.6 from the 15-year high in June as record oil prices and rising interest rates threatens to slow economic growth. Following the escalating conflict in the Middle East, the price of crude oil reached a record $78.40 a barrel and coupled with a further tightening of Euro-zone interest rates, it seems that business confidence may continue to slow in the second half of the year. However, the Euro was relatively unchanged on the release of the negative data and made further gains against the majors by the close last night, which gives us an indication that the Euro will continue to strengthen in the build-up to the ECB interest rate announcement next week. We have already seen further market movement this morning as German consumer confidence rose to the highest level in 5-years, thanks largely to the staging of the World Cup in the region, but primarily due to the increase in sales tax that will come into force next year as households became more willing to spend.
The Pound remained relatively unchanged during yesterday's session despite the CBI Industrial Trends Survey improving by less than expected in July. UK Manufacturing has staged a decent recovery this year but the slight fall in orders this month is consistent with the PMI survey. Without any significant data released in the UK for the remainder of this week, the Pound may be open to attack but due to a host of positive economic data, it does seem increasingly likely that the Bank of England will lift interest rates at some point in the fourth quarter.
The Dollar has relinquished much of the positive sentiment that built up following the release of strong consumer confidence data and a better than expected report on the sales of existing homes earlier this week. It was widely expected that the Fed's aggressive policy towards raising interest rates would have a devastating effect on the U.S housing market but over the past two months, the sales of new and previously owned homes has continued to post better than expected results. Therefore, the Dollar strengthened on speculation that the Fed may need to continue tightening interest rates beyond the current 5.25%. However, in the past 24hrs expectations have dramatically shifted away from an impending rate rise as the Fed's Beige Book, which reports on economic conditions two weeks prior the monetary policy meetings, reported that consumer sentiment is slowing while inflationary pressures are at a 'modest' level. This will heighten speculation that the Fed will hold U.S interest rates for the first time in almost 18-months and as a result, the Dollar declined significantly against the majors, trading towards 1.8600 against the Pound and above 1.2750 versus the Euro.
Data Released 27th July
U.S 13:30 Durable Goods Orders (June) U.S 13:30 Weekly Jobless Claims (w/e 22nd July) U.S 13:30 New Home Sales (June)
The Dollar rallys against the majors as U.S consumer confidence unexpectedly rose in July despite higher petrol prices and rising interest rates
The Dollar has staged an unlikely rally against the Pound this week and we saw further gains yesterday following the release of some key data in the U.S with Consumer Confidence unexpectedly rising to a three month high in July. It was widely anticipated that confidence amongst the American consumer would decline to a reading of 104.7 this month but the index actually rose to 106.5 despite the obvious decline in U.S home sales on spending. It seems evident that consumer confidence is currently being fuelled by a strong labour market and gains in personal income, which have thus far supplemented rising petrol prices and higher interest rates. In addition, existing home sales in the States fell by less than expected in the figures for June, falling to an annual rate of $6.62 million, which was slightly above forecast and the predicted decline of the U.S housing market is not supported in the recent surveys. The Dollar made significant gains on the release of the strong data as we closed around 1.8400 against the Pound with investor's raising expectations of a further tightening of U.S interest rates in August.
The Pound has been gaining in recent weeks on speculation that the Bank of England will finally lift UK interest rates for the first time in nearly 12 months as the economy grows at the fastest pace in two years and inflation continues to show signs of accelerating beyond the government's 2% target. However, due to a sparse supply of data released this week the Pound has relinquished some of the recent gains, particularly against the Euro, but the CBI industrial trends survey is released this morning and it is widely expected to remain at a high level as the recovery in UK manufacturing continues to show signs of growth.
The Euro has been making steady gains against Sterling after we failed to break the resistance level at 1.4675 earlier this week and we may see further strength this morning with the release of the German Ifo index for July. Business confidence in Europe's largest economy rose to the highest level in 15-years in June and although we expect to see a modest decline to 105.9 this month the Ifo will still point to robust growth in German GDP in the second quarter. In addition, Retail Sales in Germany is widely expected to show an increase in sales of upto 3.0% in June as the country reaps the benefits of staging the World Cup this summer.
The Pound suffers against the majors as we bounce off the significant resistance level at 1.4675 against the Euro
Following a quiet day in terms of economic data released, there was some renewed appetite for the Dollar in early trading yesterday as investor's looked for a relative safe haven amid continued turmoil in the Middle East and speculation increased that the Federal Reserve would lift interest rates one last time in August before pausing at 5.50%. However, some speculators have argued that yesterday's move can be attributed to a 'correction from last week's sell off rather than be driven by any new fundamental developments'. There is some significant data released in the States today that could potentially shift rate expectations with U.S Consumer Confidence set to decline from 105.7 to 104 in July as a dramatic increase in petrol prices continues to weigh on consumer sentiment and household spending. In addition, the U.S housing market in particular has been in retreat due to the aggressive tightening of interest rates over the last two years and the Sales of Existing Homes is widely expected to drop in June following an unexpected rise in May.
The recent positive sentiment surrounding the Pound was prematurely cut short yesterday amid a disappointing retail report with the CBI Distributive Trades Index unexpectedly dropping to 7 from a reading of 9 in July as the increase in sales at the start of the Summer moderated after the conclusion of the World Cup. In addition, the Pound was hampered further from comments from the Deputy Prime-minister, John Prescott, who hinted at a possible timetable for Tony Blair's resignation while elsewhere, the seasonally adjusted three-month report for UK car production dropped by much more than expected, falling from 1.6% to 0.4% in June.
The Euro has been suffering in recent weeks and that trend seemed to continue yesterday dropping by 0.6% against the Dollar to close just above 1.2600. However, against Sterling the resistance level at 1.4675 has held firm in the last 24hrs and the trend looks to be peaking around this level. Therefore, Euro buyers may wish to place a stop order in the market to ensure against adverse market movement in order to take advantage of the current rate of exchange as we draw ever closer to the ECB announcement next week. In terms of economic data released, the focus today will fall upon the Business Confidence reports in France and Italy while elsewhere, the Current Account Balance is widely expected to show a marginal deficit in May from the previous month.
The Pound continues to make gains as growth in the UK economy accelerates to the fastest pace in two years
Following on from the last week, the Pound made significant gains against the Euro and the Dollar as speculation intensifies that the Bank of England will need to raise UK interest rates for the first time in eleven months to cope with the threat of rising inflation. A strong pick-up in retail sales and the Consumer Price Index pushed Sterling towards 1.8500 versus the Dollar at the close on Friday while the Euro is still being hampered by the ongoing conflict in the Middle East as we ended the week at 1.4650. In addition, UK economic growth accelerated at the fastest in pace two years in the second quarter, which provides further evidence that the BoE will have to lift interest rates from the current 4.50% and forecasters are anticipating that the MPC could shift rates as early as next month. There is a sparse supply of significant data released in the UK this week with the focus falling on the CBI Industrial Trends survey released on Wednesday. It is widely expected to show a modest decline in orders last month but will keep consistent with the PMI survey, which has shown a recent pick-up in the UK manufacturing sector.
As I have mentioned, the Euro has come under increased pressure due to the ongoing conflict in the Middle East but it can also be argued that a host of negative Euro-zone data has shifted interest expectations over the coming months with the ECB concerned that a further tightening of interest rates will hamper economic growth. However, the Central Bank has given a strong indication that policy makers will lift rates to 3% on the 3rd August but we will be looking for direction on future policy during the accompanying press conference. The economic calendar in the Euro-zone is particularly light this week with German inflation data and the M3 money supply report taking centre stage. In addition, the Ifo business climate index is widely expected to remain near the 15-year high from last month, which indicates a strong pick-up in German GDP growth in the second quarter and therefore adding to the case for higher Euro-zone interest rates.
The Dollar came under renewed pressure last week following Ben Bernake's first semi-annual testimony to the Senate Banking Committee where he stated that a gradual slowdown in U.S inflation could be expected, which has dampened speculation that the Federal Reserve will carry on raising interest rates in August. There is a plethora of significant data released in the States this week that should provide the market with some fresh direction ahead of the FOMC interest rate announcement next month. Firstly, GDP growth in the second quarter is widely expected to decelerate to 3.0% from 5.6% in the figures released on Friday. While elsewhere, the PCE deflator, which is the Fed's preferred measure of inflation, may show a modest rise to 3.4%, which together with a predicted increase in the Employment Cost Index, point to the need for a further tightening of interest rates. In addition, the slowdown in the U.S housing market has been a direct result of the Fed's aggressive policy towards raising interest rates and policymakers will be watching the data released this week for further evidence that sales continue to deteriorate following an unexpected rise in May.
The Pound makes further gains against the majors as UK Retail Sales climbs by twice as much as expected in June
The recent positive sentiment surrounding the Pound can be attributed to speculation that the Bank of England may finally be ready to shift monetary policy for the first time in almost a year. There was some significant data released in the UK yesterday that reaffirmed those suggestions with Retail Sales rising by twice as much as expected in June with sales increasing by 0.9% from May, which has prompted investors to raise their bets on a rise in rates over the coming months. Retail Sales accounts for two thirds of consumer spending, which has helped drive economic growth this year as the UK economy continues to expand into the third quarter while inflation also accelerates beyond the government's comfort zone. Therefore, a further tightening of monetary policy seems inevitable and the Pound has been gaining on the news, firming 0.4% against the Dollar to close around 1.8500 last night. Sterling could make further gains this morning with the initial estimate for UK Gross Domestic Product in the second quarter and it is widely expected to show a quarterly increase of 0.7%, which would mean the annual growth rate has increased from 2.3% to 2.5%. Therefore, UK economic growth will maintain the fastest pace in two years going into the third quarter as a pick-up in consumer spending combined with sustained growth in the manufacturing and services sector signals the need for higher interest rates.
Without any significant data released in Europe or the States today, we expect the markets to be fairly quiet with attention switching to the ongoing conflict in the Middle East. The Euro has been under increased pressure since the fighting began in Lebanon but there has been some positive data released in the past 24hrs with Italian Consumer Confidence rising to a four month high in July while French consumer spending increased to a one-year high as both countries reached the final of the World Cup, which has evidently boosted sales.
The Dollar has been in retreat in the past 48hrs, particularly since Ben Bernanke addressed the Senate Banking Committee on monetary policy where it now seems likely that the Federal Reserve will hold interest rates around 5.50% following one more rise next month as economic growth begins to slow in the second half of the year. As a result, the Dollar declined against the majors and we saw further weakness yesterday despite the better than expected jobless report where initial claims over the last week dropped significantly to 304,000. In addition, an index of U.S leading economic indicators rose for the first time in three months in June as strong consumer confidence and a seemingly buoyant labour market will keep the economy on track. However, factory output in the Philadelphia region slowed dramatically in July with the Philly Fed Index dropping to 6.0 from 13.1 in June, which is lowest reading since January this year. Elsewhere, the minutes of the Federal Reserve's June policy meeting were released last night and portrayed a level of uncertainty with regard the future tightening of interest rates but it seems the majority of policy makers believe that U.S inflation will gradually "edge down".
The Dollar's recent rally ends in dramatic fashion amid Ben Bernanke's first semi-annual testimony to the Senate
Amid the continued turmoil in the Middle East, the U.S Dollar has made significant gains against the majors, firming to the highest levels against the Euro since mid April as speculation has intensified that the Federal Reserve will need to carry on raising interest rates in order to keep inflation in check. However, the Dollar's two week rally came to a dramatic end yesterday, dropping over a point against the Pound to close around 1.8400 as the Fed chairman, Ben Bernanke, delivered his first semi-annual monetary policy report to the Senate Banking Committee. In his testimony, Bernanke focused on inflation and slowing economic growth saying, "moderation in growth would limit inflationary pressures over time". The chairman also highlighted that long-term inflation pressure had slowed somewhat, largely as a result of seventeen consecutive interest rates rises over the past two years.
Therefore, it now looks increasingly likely that the Fed will hold interest rates in the coming months although investor's are still factoring in a further hike in U.S rates in August. There was also some significant data released in the States yesterday with the Consumer Price Index showing an increase in prices for the sixth month running in June with costs excluding food and fuel rising by more than forecast. The Dollar may come under further pressure this afternoon as the weekly jobless report may show a further decline in the U.S labour market after recording 332,000 claims last week while elsewhere, the Philly Fed Index is expected to drop significantly in the figures for July.
The Pound has enjoyed a decent rally over the past two weeks and we saw further gains against the Dollar and the Euro yesterday despite the release of the minutes from the Bank of England's last policy meeting. The MPC voted unanimously 7-0 in favour of keeping UK interest rates on hold at 4.50% but as a result of a string of positive economic data released in the past month, the Pound has been gaining on speculation that the BoE will need to lift rates at some point this year as core inflation accelerates to 2.5%. There is some significant data released this morning in the UK, which could push Sterling back above yesterday's four week high against the Euro with Retail Sales widely expected to show an increase of 0.2% in June.
The Euro has declined significantly against Sterling and the Dollar in the past few weeks, primarily due to the continued unrest in the Middle East but it can also be argued that a string of negative data has shifted interest rate expectations in the Euro-zone over the coming months. The ECB are widely expected to lift rates to 3% next month but concerns are growing that a further tightening of monetary policy will result in slowing economic growth. However, there was some strong inflation data released in Germany yesterday with the Producer Price Index accelerating by more than anticipated in June as the cost of energy and raw materials increased. Data Released 20th July
UK 09:30 Retail Sales (June)
U.S 13:30 Initial Jobless Claims (w/e 15th July) U.S 15:00 Leading Indicators (June) U.S 17:00 Philly Fed Index (July) U.S 19:00 FOMC Minutes 28/29 June Meeting
The Pound appreciates further against the Euro after UK inflation rises to 2.5% in June, signalling the need for higher interest rates
There was a host of significant data released both in Europe and the U.S yesterday as the Pound looked to make further gains against the majors, firming 0.4% against the Dollar and up 0.6% versus the Euro. The positive sentiment surrounding Sterling increased following the release of the June Consumer Price Index, which showed that UK inflation is continuing to accelerate amid rising energy costs and therefore higher utility bills. The index rose by much more than expected at 0.3% month-on-month from May, pushing annual inflation towards a nine-month high at 2.5%, which is way ahead of the government's target as speculation builds that the Bank of England will need to lift interest rates in the fourth quarter. Elsewhere, the RICS House Price Balance showed that prices in the UK continue to show signs of growth by rising to the highest level in almost two years. Without any economic data released in the UK this morning, the focus will be on the minutes of the BoE's last policy meeting where it is widely expected that the MPC voted unanimously to keep interest rates on hold at 4.50%.
The Euro came under further pressure yesterday amid the release of the ZEW survey for German investor confidence, which fell by more than expected in July and to the lowest level in over a year despite the staging of the World Cup in the region. The report may spur concerns that higher interest rates are beginning to weigh heavily on economic growth. It is widely anticipated that the Central Bank will raise borrowing costs again on August 3rd to take their benchmark interest rate up to 3% but this report may damage the prospect of a further change in monetary policy going into the third quarter. The Euro declined significantly against the Pound, closing above 1.4600 last night and we are approaching a three-month low against the Dollar as speculation intensifies that the ECB will continue to adopt a more cautious approach to monetary tightening. There is a sparse supply of euro-zone data released for the rest of this week but the German Producer Price Index, out this morning, should provide an indication of inflation in Europe's largest economy with forecasters anticipating that prices increased by 0.2% in June.
The Dollar's recent rally showed no signs of slowing yesterday amid the release of some positive U.S data. Firstly, the Producer Price Index rose by more than expected in June as prices paid for food and energy grew by 0.5% on the month following a 0.2% increase in May, which will heighten concerns that U.S inflation may accelerate further despite the Federal Reserve lifting interest rates for seventeen consecutive months. Therefore, investors have increased the possibility of a rise in U.S interest rates in August and we will be watching the Consumer Price Index this afternoon with forecasters anticipating that the year-on-year growth rate jumped from 2.4% to 2.6%, while prices may have increased by upto 0.3% on the month. In addition, the chairman of the Federal Reserve, Ben Bernanke, takes centre stage this afternoon as he gives his semi-annual monetary policy report to the Senate Banking Committee. With escalating geopolitical issues in the Middle East, record oil prices and mounting inflationary pressures, Bernanke will need to reassure investors that the Fed can control inflation and moderate growth without pushing the U.S economy into recession.
Data Released 19th July
GER 07:00 Producer Price Index (June)
UK 09:30 BoE Minutes 5/6 July Meeting
U.S 13:30 Housing Starts (June) U.S 13:30 Consumer Price Index (June) U.S 13:30 Real Earnings (June)
The Dollar makes further gains amid speculation that the Fed will need to continue raising U.S interest rates in order to cope with rising prices
The positive sentiment surrounding the Dollar continued yesterday as we surged under 1.8200 versus the Pound for the majority of the session. The conflict in the Middle East is seemingly fuelling the recent rally as investors turn to the Dollar as a relative safe haven amid times of uncertainty and relinquish any "risky" assets. However, it can also be argued that the conflict in the Middle East will increase inflationary pressures in the States and it seems that the market may be factoring in a possible hike in U.S interest rates next month in order to supplement record oil prices. In recent months, there has been some aspects of the U.S economy that has showed some signs of slowing down but it seems that Industrial Production has rebounded in the last month to rise by 0.8%, which was more than anticipated following the moderate decline in May, as factories increased their production of communications equipment.
There is some significant data released in the U.S this afternoon that could potentially fuel speculation that the Federal Reserve will need to continue tightening interest rates in August. The Producer Price Index is widely expected to show that core prices jumped from 1.5% to 1.9% in June. Elsewhere, the TIC's Net Capital Inflows will be watched closely and the consensus forecast is for a dramatic pick-up from the previous month but net inflows could still fall some way short of covering the ever widening U.S trade deficit.
The Euro has come under increased pressure in the past week and the single currency dropped back further against the Dollar yesterday and declined by 0.1% versus the Pound. There was some significant inflation data released in the Euro-zone with the Consumer Price Index holding at 2.6% in June, which was relatively unchanged from the previous month with the year-on-year growth rate at 1.4%. This suggests that the ECB may not need to adjust interest rates quite so aggressively over the coming months, although inflation still remains above the Central Bank's comfort zone. In addition, Industrial Production in the Euro-zone increased by more than anticipated in May with output increasing to 1.6% from 1.4% the previous month. The focal point today in terms of European data released will be the German ZEW survey for economic sentiment and forecasters are expecting a moderate rise in June from 37.8 in May, primarily due to the staging of the World Cup this summer.
There was a sparse supply of economic data in the UK yesterday but the Rightmove House Price survey provided some positive news in relation to the housing market as prices jumped significantly in July despite forecasters predictions that a relative slowdown in the UK housing market was likely, due in part to rising inflation and the prospect of higher interest rates. A change in UK monetary policy remains fairly muted in the Bank of England, particularly since the death of MPC member David Walton last month, but any evidence that UK inflation is accelerating in the data released this morning will raise the possibility of a rise in rates later this year. The Consumer Price Index is widely expected to remain unchanged at 2.2% in June, which is slightly above the government's target.
Data Released 18th July
UK 09:30 Consumer Price Index (June)
EU 10:00 Trade Balance (May)
GER 10:00 ZEW Expectations Balance (July)
U.S 13:30 Producer Price Index (June) U.S 14:00 TIC's - Net Capital Inflow (May)
The Dollar strengthens under 1.8300 against the Pound ahead of a week of significant inflationary data in the States and in Europe
Following on from last week, The Euro and the Dollar came under pressure amid the geopolitical tensions in the Middle East with investor's turning to the Swiss Franc and the Pound as relative safe havens. However, on Friday the Dollar shrugged off poor retail and consumer confidence data to close under 1.8400 against the Pound and we have seen further gains early today as we drop underneath 1.8300. There is a host of significant economic data released this week in the States that will determine whether the Federal Reserve finally hold interest rates in August. During the June FOMC rate announcement, Ben Bernake indicated that the Fed would hold interest rates in August if inflation had showed some signs of slowing down.
On the note, the Producer Price index, released tomorrow, will take on added significance and forecasters are anticipating that prices, excluding food and energy, have risen by 0.2% last month. In addition, the Consumer Price index for June is also released later this week and will provide a good indication whether the Fed will lift rates from the current 5.25%. The consensus forecast is for core prices to jump by upto 0.3%, which will push the year-on-year growth rate to 2.6%. However, it can be argued that the U.S economy is beginning to slowdown into the third quarter as we have seen a sustained dip in the housing market while industrial production and manufacturing output have remained fairly muted. Further evidence of the this should be provided in the figures released this afternoon with industrial production expected to moderate from 4.3% in May to 3.9% last month.
The Euro has declined against the Pound and the Dollar in the past week despite the ECB's intention to lift interest rates further in their next meeting on August 3rd. There is a sparse supply of significant economic data released in the euro-zone this week but the Consumer Price Index this morning should provide an indication of inflation with the headline measure widely expected to remain unchanged at 2.5%, which is still above the Central Bank's comfort zone. In addition, Industrial Production in June is also released this morning and the consensus forecast is for an increase of 1.4% taking the annual growth rate upto 4.2%.
The Pound has enjoyed a decent move against the Euro as we closed above the significant resistance level at 1.4500 last week amid continuing unrest in the Middle East. There is a host of important inflationary data released in the UK this week that will give direction on the Bank of England's next move with regard a tightening of interest rates. While the Consumer Price Index is widely expected to remain unchanged, the initial estimate for UK GDP may have taken the year-on-year growth rate to 2.5% in the second quarter and that would raise the probability of a rise in UK rates at some point this year as the BoE attempt to cope with the threat of rising inflation.
Data Released 17th July
EU 10:00 Harmonised CPI (June) EU 10:00 Industrial Production (May)
U.S 13:30 Empire State Index (July) U.S 14:15 Industrial Production (June) U.S 14:15 Capacity Utilisation (June)
The Dollar may come under further pressure amid the turmoil in Nigeria and the violence in the Middle East
The Pound made significant gains against the Dollar but particularly the Euro yesterday despite a sparse supply of important data released in the UK or the rest of Europe. Cable was relatively unchanged before the BCC quarter economic survey for the second quarter even-though the price of crude oil rocketed to $75 a barrel overnight as turmoil in Nigeria threatened the production of 120,000 barrels a day. Elsewhere, the Bank of England have appointed Andrew Sentence to their Monetary Policy Committee to replace the recently departed David Walton, who tragically died last month following a short illness. His arrival at the MPC did little to dampen demand for Sterling despite Mr Sentence twice voting for cut in UK interest rates in March and April this year. The Pound has tested 1.4500 against the Euro on two occasions in the past two days and yesterday we managed to close just above that level. Sterling firmed by 0.4% against the Dollar on the day and 0.5% versus the Euro with the positive sentiment surrounding the Pound attributed to a large trade off of euros into sterling that passed through the market.
The Euro came under increased pressure yesterday despite the ECB indicating that a rise in Euro-zone interest rates will be necessary in August as higher inflation continues to threaten economic growth. The Euro was largely unaffected on the release of the ECB monthly bulletin but inflationary data in France and Germany has raised speculation that the Central bank's cautious approach towards monetary tightening may be justified. The Consumer Price Index for both countries posted a modest increase in June and was slightly below expectations with harmonized CPI in Germany showing a 0.1% month-on-month increase with the annual growth rate at 2.0%, which is in line with the ECB's target for Euro-zone inflation.
The Dollar has staged a decent rally over the past few days but a retracement was under way yesterday in light of the oil fiasco in Nigeria. In addition, the price of crude oil rose to another record high yesterday at $78 a barrel as escalating violence in the middle east between Israel and Lebanon threatens global supplies. The single currency also came under pressure from initial jobless claims, which showed that the number of people claiming benefits actually rose to 332,000 in the last week, which was way ahead of expectations and supports the monthly job report that the seemingly buoyant U.S labour market is beginning to subside. There is a host of significant data released in the States this afternoon, most notably the Retail Sales report for June with both headline and core sales widely expected to rise by 0.4% from May. In addition, the preliminary Michigan sentiment survey will also provide an insight into consumer sentiment while elsewhere U.S import prices are expected to show modest gains in June of 0.3% while export costs are forecast to show a 0.4% increase from the previous month.
In other news, the Bank of Japan finally raised interest rates from zero for the first time in six years and projected a sustained period of growth in the coming months, ending a decade of deflation. However, policy makers elected to lift interest rates by just 25 basis points with the market anticipating a slightly more aggressive move and as a result, the Yen has not made the positive gains that we would of anticipated.
Data Released 14th July
U.S 13:30 Retail Sales (June) - Ex Autos
U.S 13:30 Import Prices - Export Prices
U.S 14:45 Michigan Sentiment (June) U.S 15:00 Business Inventories (May)
The Dollar stages an unlikely rally as the U.S Trade Deficit unexpectedly widens by much less than forecast at $63.8 Billion
The Pound suffered further losses against the Dollar yesterday as UK jobless claims rose by slightly more than expected in June and reached the highest level in four years last month, which dampens inflationary pressures and increases speculation that the Bank of England will continue to hold interest rates at 4.50%. The number of people out of work and claiming benefits increased by 5,900 to 956,600 in May, which is the highest level since January 2002 although the unemployment rate remained unchanged at 3%. In addition, UK average earnings also remained fairly muted in June as employers attempt to soften the blow of higher energy prices by keeping a restraint on wage growth. The apparent lack of improvement in the labour market is also contributing to the assumption that the BoE will not tighten interest rates over the coming months and as a result, the Pound weakened against the Dollar to trade back under 1.8400.
For a second day in succession, the Euro continued to hold steady around 1.4450 against the Pound at the close of trading last night but we did see some movement over the course of the day. There was some significant inflationary data released in the euro-zone in the morning as first quarter GDP came out largely in line with expectations at 0.6% growth, which reiterated the previous estimates taken although the annual rate in the first quarter was slightly higher than anticipated at 2.0%. With the August 3rd interest rate announcement fast approaching, it now seems inevitable that the ECB will hike interest rates a further quarter-point to take them upto 3%. There is a sparse supply of economic data released in the euro-zone for the remainder of this week but the ECB monthly bulletin tomorrow morning may provide an insight into the Central Bank's stance on monetary policy over the next month.
The Dollar received a timely boost yesterday as the U.S Trade Deficit widened by much less than anticipated at 0.8% from April with the gap in goods and services increasing to $63.8 Billion, which was well under expectations as U.S exports rose to the highest level in four years and consumer demand for foreign products unexpectedly dropped. The Dollar's 4% decline in the last year is making American-made products more attractive overseas as faster economic growth in Europe and Asia spurs on U.S exports while a slowdown in U.S consumer spending, due to higher interest rates and rising petrol costs, is curbing demand for imported goods. As economic growth begins to slow in the second half of the year, U.S demand for imported goods is expected to shrink, which will also allow the current account deficit to narrow from 6.4% of Gross Domestic Product. However, the Dollar has come under pressure overnight as Crude Oil rose to a record high to over $75 a barrel as militants in Nigeria attacked pipelines, halting the production of 120,000 barrels of oil a day.
The Pound comes under further pressure as the UK Trade Deficit unexpectedly widens in May
The Pound came under some pressure yesterday as the UK Trade Balance showed that the deficit in goods and services actually widened in May, which suggests that UK exports will be unable to fuel economic growth in the second quarter. The gap increased to £6.8 Billion, the biggest increase since February, despite forecasters anticipating that the deficit actually narrowed to £5.7 Billion as surging energy costs and the Pound's dramatic appreciation against the Dollar have a negative impact on UK exports. As a result, Sterling dropped against the Dollar to trade back under 1.8400 on the release of the trade balance and there is some significant data released this morning that could potentially effect the market with the UK unemployment rate and average earnings to the three months to May. Jobless claims probably rose to the highest level in four years, which will help curb wage demands and reduce the pressure on higher inflation as the number of people claiming benefits is likely to rise by upto 5,000 in June to 955,900, the highest since January 2002.
The Euro remained relatively unchanged yesterday, firming 0.1% versus the Dollar amid a quiet day in terms of economic data released. However, the final estimate for euro-zone gross domestic product is released this morning and forecasters are anticipating that the economy grew at rate of 0.6% in the first quarter, which would confirm previous estimates and therefore justify a further tightening of interest rates as the economy continues to accelerate. There has been a host of positive news for the euro-zone economy in the past month with European manufacturing expanding by the most in nearly six years in June and the service sector grew at the fastest pace since 2000. Euro-region unemployment dropped in May to the lowest level since October 2001 and it seems that a rise in interest rates is inevitable when the ECB next convenes on August 3rd.
The market seems to waiting in anticipation ahead of the U.S Trade data released this afternoon as the Dollar was virtually unchanged against the majors at the close last night, hovering around 1.8400 against the Pound and dropping slightly against the Euro. The U.S Trade Deficit is widely expected to widen to $65 Billion in May, the third highest on record, following rising crude oil prices and the level of goods imported from overseas. The shortfall in trade, which many U.S economists blame on the devaluation of the Chinese Wan, will continue to weigh on the economy and threaten economic growth as net capital inflows proved to be insufficient to cover the trade deficit last month. The Dollar is likely to decline against the Pound if the deficit widens by more than forecast in May and similarly, we can expect a positive reaction if the gap in goods and services has narrowed slightly from the previous month.
Data Released 12th July
UK 09:30 Unemployment Rate (June) UK 09:30 Average Earnings (3 months to May)
The Pound weakens against the Dollar as UK Producer Prices decline in June while the Housing market continues to show signs of growth
There was a real mixed bag of UK data released yesterday and as a result, the Pound dropped by 0.4% versus the Dollar at the close last night to trade in and around 1.8400. Firstly, the Producer Price Index came out slightly under expectations with output prices accelerating by 0.1% in June, which takes the annual growth rate to 3.3% while input prices slowed to 10.9% from May, which was considerably lower than expected and goes some way to dampen suggestions that rising UK inflation will need to be contained. Therefore, the likelihood of a rise in UK interest rates next month has been severely muted and that sentiment was further emphasised in the BRC retail sales survey for June, which showed that the pace of consumer spending has slowed considerably in the second quarter. Elsewhere, UK house prices will remain at an elevated level as the ODPM house price survey showed this morning with prices jumping to 5.6% in May, which was well above expectations. There is some significant UK data released this morning with the global trade balance and forecasters are anticipating that the deficit narrowed slightly in May from £5.75 billion the previous month as the increase in euro-zone domestic demand will continue to help support UK export growth in the coming months.
The Euro remained relatively unchanged against the Pound yesterday, hovering around 1.4450 for the most part of the day following the release of some poor European data, which showed that German exports declined significantly in May while imports also slipped 2.6%. This will fuel speculation that the Euro's 8% appreciation against the Dollar this year is beginning to wane of euro-zone exports as investors look elsewhere for cheaper alternatives. In addition, European Finance Ministers convened yesterday to discuss economic growth in the euro-zone and gave a clear indication that a further tightening of interest rates will be needed as faster growth fuels the risk of higher inflation. There is a sparse supply of economic data released in the Euro-zone until the Final GDP estimate tomorrow but we could see some market movement over the course of the day as the chairman of the ECB, Jean-Claude Trichet, may give some hints towards future monetary policy in a speech later this morning.
The market seemed to consolidate yesterday as the Dollar retraced most of the losses from Friday's poor U.S job report, which showed that the economy had added much fewer jobs than expected in June and therefore went some way to justify the Fed's intention to hold interest rates next month. However, although Nonfarm Payrolls was considerably worse than anticipated, the U.S unemployment rate is still at a five-year low at 4.6% and household earnings has accelerated to a five-year high, which both provide a strong case for inflation ahead. There was some significant data released in the States yesterday with Wholesale Inventories coming out ahead of market expectations at 0.8% in May, which gives an indication that producer and consumer interest is still advancing in the second half of the year despite higher petrol prices and rising interest rates.
The Dollar retreats back towards 1.8500 against Sterling as the U.S economy adds fewer jobs than expected in June
Following on from last week, the Dollar declined against the majors on Friday after the U.S monthly job report showed that the economy only added 121,000 jobs in June, despite forecasters predicting that Nonfarm payrolls would increase beyond 150,000 last month. The unemployment rate remains unchanged at 4.6% but it seems that the seemingly buoyant U.S labour market is beginning to subside into the third quarter. This will bolster speculation that the Federal Reserve will hold U.S interest rates in August and therefore the consumer data released this week in the States will take on added significance as investors look for further evidence that the Fed will pause at 5.25% next month. The focal point in terms of U.S data released this week will be Retail Sales for June with both headline and core sales widely expected to rise by 0.4% from May. Elsewhere, the U.S Trade Deficit is released on Wednesday and forecasters are anticipating that the gap in goods and services has widened to $65 billion in June primarily due to sky-high oil prices, which will undoubtedly have an effect on U.S imports.
Following the hawkish tone of the ECB press conference last week with regard a further tightening of monetary policy, the Euro has been making further gains against the Pound and the Dollar as investors raise the possibility of a rise in euro-zone interest rates next month. Therefore, the ECB monthly bulletin on Thursday will be watched closely for a further indication that the Central bank will lift rates again in August. In addition, there is also some important inflationary data released this week, which will give us an insight into economic growth in the first quarter with price pressures already above the ECB's comfort zone.
The Pound has been under some pressure of late despite some obvious improvement in the manufacturing and services sector. The Bank of England elected to hold UK interest rates at 4.50% and it will be interesting to see how the seven-strong committee voted in the minutes of the meeting released next week, particularly since David Walton, the sole voice for a rise in rates unexpectedly died last month. The main focus this week in terms of data released will be the UK trade balance, which is widely expected to narrow slightly in May but there is some significant data released this morning with the Producer Price Index and BRC retail sales survey. The consensus forecast is for Input and Output prices to show modest growth in June primarily due to rising energy costs while the BRC sales report should provide an insight into the pace of consumer spending in the second quarter.
Data Released 10th July
UK 09:30 Producer Price Index (June) - Input & Output
The ECB keep interest rates on hold at 2.75% but Trichet maintains that the central bank will remain "vigilant" on inflation
The Pound remained relatively unchanged yesterday after the Bank of England announced that UK interest rates would remain on hold at 4.50% for the eleventh month in succession in July and we will have to wait until next week to gauge how the seven strong committee voted. It was widely anticipated that UK rates would remain on hold this month but pressure is mounting for the central bank to change monetary policy in the face of rising inflation and higher energy costs. This was emphasised in the economic data released yesterday where UK industrial production increased by more than expected in May, jumping by 0.5% with manufacturing output also showing signs of growth from April. Elsewhere, the Halifax House Price survey showed that UK prices has declined by the most in two years in the index released yesterday, which has revived speculation that the property market is beginning to decline.
The ECB also elected to hold interest rates at 2.75% this month, despite several members of the governing council publicly declaring the need to quicken the pace of interest rate rises as the economy accelerates faster than anticipated. In the accompanying press conference, the chairman, Jean-Claude Trichet, reiterated that the economic data in the euro-zone continues to show signs of improvement and "conditions are in place for growth to stay near potential". However, Trichet also stated that the ECB would remain vigilant on inflation and used the exact same terminology that he used in the statement prior to the December rate rise last year. Therefore, it now looks increasingly likely that the ECB will lift interest rates on the 3rd August but the market has looked fairly quiet since the announcement, which leads me to believe that a hike in rates next month was already factored into the market as we continue to hold around 1.4400 against Sterling. Elsewhere, German factory orders fell significantly in May with orders declining by 1.2% from April, which is an indication that the Euro's dramatic appreciation against the Dollar this year is beginning to have a negative impact on euro-zone exports. This may have a bearing on future monetary policy as the ECB becomes concerned that the Euro's 8% appreciation against the Dollar this year will begin to wane on exports and therefore widen the trade deficit.
The Dollar has bounced back in the past 48hrs amid the release of the ADP employment report, which showed that the economy had added a phenomenal amount of jobs in the past month. However, there has been some significant data released this afternoon in the States, which showed that U.S Service Industries grew at a much slower pace than previously expected, led by a dramatic 'cooling' of the housing market in the second quarter. The ISM non-manufacturing index actually dropped to 57.0 from 60.1 in May and as a result the Dollar momentarily dropped back towards 1.8400 against Sterling, although we closed well under this level. There is some hugely significant data released this afternoon with U.S Nonfarm payrolls set to show that the economy added in excess of 150,000 jobs in June with the Average Earnings rising 0.3% and the unemployment rate is widely expected to remain unchanged at 4.6%. If the monthly job report shows a bigger improvement in the labour market than anticipated, we can expect the Dollar to strengthen further against the Pound.
The Dollar makes gains against the Pound after the ADP Employment report shows the economy added a whopping 368,000 jobs in June
Without doubt, the most significant event this week will take place at midday when the European Central Bank announce their latest stance on euro-zone interest rates and it is widely anticipated that the ECB will continue to adopt a more measured, cautious approach this month despite six members of the governing council publicly giving their backing to a more aggressive tightening of rates. However, the chairman of the Central bank, Jean-Claude Trichet, has thus far resisted giving his own opinions on euro-zone growth and the need to raise interest rates, which has left investors speculating that the ECB will keep rates on hold at 2.75%. Therefore, the accompanying press conference takes on added significance as the market looks for direction over future monetary policy and if Trichet indicates the need for a pick-up in the pace of interest rate rises, the Euro will undoubtedly strengthen against the Pound, pushing back under 1.4400. There was some significant data released yesterday in the euro-zone ahead of today's announcement with European service industries expanding by the most in six years in June according to the Purchasing Manager's Index. Elsewhere, Retail Sales unexpectedly declined in the figures for May, dropping 0.6% from April despite a predicted pick up in sales thanks largely to the staging of the World Cup.
The Pound has been struggling in the build up to the Bank of England rate announcement today where the MPC are widely expected to hold UK interest rates at 4.50% for the eleventh month in succession as the BoE await a firm pick-up in consumer sentiment. Since the untimely death of David Walton, who was the sole voice for a rise in rates for the past two months, the market has lacked a little direction will regard UK interest rates and it will be interesting to see how the committee voted when the minutes of the meeting are released next week. There has been a sharp pick-up in the manufacturing and service sectors in recent months and that sentiment has been reaffirmed this week with PMI Services remaining at a high level in the data released yesterday. The figure was slightly under expectations but was still positive for the service-dependent UK economy, coming in at 58.7 down from 59.2 in May. In addition to the BoE rate announcement, there is some significant data released in the UK this morning with Industrial Production expected to show modest gains in May while manufacturing output looks set to jump by 0.1%.
The Dollar made significant gains against the Pound yesterday amid the release of the ADP National Employment report, which acts as an insight into Nonfarm Payrolls released on Friday this week and doesn't normally have too much influence on the Dollar's status. However, the report estimated that the economy added an amazing 368,000 jobs in June and provides further evidence that the U.S labour market is continuing to show signs of robust growth in the second quarter. As a result, the Dollar strengthened against Sterling and closed well underneath 1.8400 last night with U.S Factory Orders also providing a timely boost as orders increased by more than forecast in May. We may see some further market movement this afternoon with the ISM Non-manufacturing index expected to show a slight decline in June while elsewhere, the weekly jobless report may show a marginal improvement from 313,000 last week.
Data Released 6th July
UK 09:30 Industrial Production (May) - Manufacturing Output
UK 12:00 BoE Rate Announcement
EU 12:45 ECB Interest Rate Announcement EU 13:30 ECB Press Conference
GER 11:00 Manufacturing Orders (May)
U.S 13:30 Initial Jobless Claims (w/e 1st July) U.S 15:00 ISM Non-Manufacturing Index (June) U.S 15:00 Pending Home Sales (May)
The Dollar makes gains against the Pound after the ADP Employment report shows the economy added a whopping 368,000 jobs in June
Without doubt, the most significant event this week will take place at midday when the European Central Bank announce their latest stance on euro-zone interest rates and it is widely anticipated that the ECB will continue to adopt a more measured, cautious approach this month despite six members of the governing council publicly giving their backing to a more aggressive tightening of rates. However, the chairman of the Central bank, Jean-Claude Trichet, has thus far resisted giving his own opinions on euro-zone growth and the need to raise interest rates, which has left investors speculating that the ECB will keep rates on hold at 2.75%. Therefore, the accompanying press conference takes on added significance as the market looks for direction over future monetary policy and if Trichet indicates the need for a pick-up in the pace of interest rate rises, the Euro will undoubtedly strengthen against the Pound, pushing back under 1.4400. There was some significant data released yesterday in the euro-zone ahead of today's announcement with European service industries expanding by the most in six years in June according to the Purchasing Manager's Index. Elsewhere, Retail Sales unexpectedly declined in the figures for May, dropping 0.6% from April despite a predicted pick up in sales thanks largely to the staging of the World Cup.
The Pound has been struggling in the build up to the Bank of England rate announcement today where the MPC are widely expected to hold UK interest rates at 4.50% for the eleventh month in succession as the BoE await a firm pick-up in consumer sentiment. Since the untimely death of David Walton, who was the sole voice for a rise in rates for the past two months, the market has lacked a little direction will regard UK interest rates and it will be interesting to see how the committee voted when the minutes of the meeting are released next week. There has been a sharp pick-up in the manufacturing and service sectors in recent months and that sentiment has been reaffirmed this week with PMI Services remaining at a high level in the data released yesterday. The figure was slightly under expectations but was still positive for the service-dependent UK economy, coming in at 58.7 down from 59.2 in May. In addition to the BoE rate announcement, there is some significant data released in the UK this morning with Industrial Production expected to show modest gains in May while manufacturing output looks set to jump by 0.1%.
The Dollar made significant gains against the Pound yesterday amid the release of the ADP National Employment report, which acts as an insight into Nonfarm Payrolls released on Friday this week and doesn't normally have too much influence on the Dollar's status. However, the report estimated that the economy added an amazing 368,000 jobs in June and provides further evidence that the U.S labour market is continuing to show signs of robust growth in the second quarter. As a result, the Dollar strengthened against Sterling and closed well underneath 1.8400 last night with U.S Factory Orders also providing a timely boost as orders increased by more than forecast in May. We may see some further market movement this afternoon with the ISM Non-manufacturing index expected to show a slight decline in June while elsewhere, the weekly jobless report may show a marginal improvement from 313,000 last week.
Data Released 6th July
UK 09:30 Industrial Production (May) - Manufacturing Output
UK 12:00 BoE Rate Announcement
EU 12:45 ECB Interest Rate Announcement EU 13:30 ECB Press Conference
GER 11:00 Manufacturing Orders (May)
U.S 13:30 Initial Jobless Claims (w/e 1st July) U.S 15:00 ISM Non-Manufacturing Index (June) U.S 15:00 Pending Home Sales (May)
The Euro strengthens further against the Dollar ahead of the PMI services report
Over the past couple of weeks, several members of the ECB's governing council have publicly reiterated their desire for the Central bank to become more aggressive towards monetary tightening as growth in the economy begins to gather momentum. The Ifo business climate index in Germany has seemingly shrugged of the threat of global inflationary pressures and higher energy prices to continue showing signs of robust growth and earlier this week, the PMI survey for June showed that European manufacturing had expanded at the fastest pace since July 1991. All of these economic factors contribute to speculation that the ECB will need to lift interest rates at a much faster rate than initially intended and therefore, the Euro is strengthening as a result. The PMI survey for euro-zone services is released this morning and is expected to show modest signs of growth in June, increasing to 59.0 from 58.7 in May. In addition, Euro Retail Sales for the month of May is released this morning and forecasters are anticipating a more measured sign of growth following the 1.4% surge in April. Nevertheless, sales are expected to increase by 0.2% and we should see further signs of growth over the next several months thanks largely to World Cup fever gripping the continent.
Following some positive signs of growth in UK manufacturing earlier this week, the Pound has been given a little reprieve in the past 24hrs, holding firm against the Euro above 1.4400. The Bank of England rate announcement tomorrow draws ever closer and although it is widely anticipated that the MPC will hold interest rates at 4.50% for the eleventh month in succession, pressure is building for the BoE to begin tightening rates in the face of rising inflation. Following the untimely death of David Walton last month, it will be interesting to see how the seven strong committee will vote and whether another member will adopt the sole voice for a rise in UK rates. There is some significant data released this morning with the CIPS Services Survey and forecasters are predicting that the recent growth in the service sector maybe fairly muted in the figures released for June, dropping to 58.9 from 59.2 in May.
The markets were fairly quiet yesterday as the U.S celebrated their 4th July Independence Day and the Dollar seems to have consolidated around 1.8400 against the Pound following that dramatic downward swing towards the end of last week. With the Federal Reserve raising U.S interest rates by a quarter point last Thursday, the dollar was largely affected by the accompanying statement where the Fed reiterated their desire to stem the threat of rising inflation but the language used wasn't as aggressive as in previous months. Therefore, the market took the opinion that the a pause in U.S rates was in sight as investors trimmed their bets for an August rise in rates. There is some important data released this afternoon in the States with the ADP Employment report expected to give some advance insights into Nonfarm payrolls, which is released on Friday. Elsewhere, U.S Factory Goods Orders in May are expected to increase by 0.1% following a sharp decline in April and that mirrors the figures for Durable Goods Orders in May, which showed shipments had increased by 2.6%.
Data Released 5th July
UK 09:30 CIPS Services Survey (June)
EU 10:00 PMI Services (June) EU 10:00 Retail Sales (May)
The Euro makes significant gains against the majors ahead of the ECB rate decision and press on conference this Thursday
The Pound received an unexpected boost yesterday ahead of the Bank of England rate announcement this Thursday with growth in UK Manufacturing exceeding expectations. The Purchasing managers index surged to 55.1 in the figures released for June with input and output prices also increasing last month, which will only add to concerns that inflation is continuing to accelerate beyond the government’s 2.0% target. The MPC are widely expected to keep interest rates on hold at 4.50% for the eleventh month in succession but pressure is building for the BoE to tighten rates if rising inflation continues to threaten economic growth.
The Euro made significant gains against the Pound and also remained firm against the Dollar yesterday as European manufacturing expanded at the fastest pace in six years, providing yet more evidence of a strengthening economy following the sustained growth in the Ifo business confidence index last week. It seems that the threat of global inflation and higher energy costs are thus far having little effect on European economic expansion, which has led to further suggestions that the ECB will need to quicken the pace of interest rate rises. However, despite many members of the Central bank giving their backing to such a move, the chairman, Jean-Claude Trichet, has resisted publicly giving his support to a more aggressive tightening of policy and therefore we expect the ECB to hold their benchmark interest rate at 2.75% in the announcement this Thursday. There is some significant data released this morning in the euro-zone that is likely to add to the calls for higher interest rates with the May Producer Price Index expected to show that prices increased by 0.3% from April. Elsewhere, the euro-zone unemployment rate is widely expected to remain unchanged at 8.0% in May.
We can expect a relatively quiet day today as the U.S celebrates their 4th July holiday, which means that there isn’t any data released in States until Wednesday. The Dollar has been reeling in recent days following the statement from the Fed last week, which wasn’t as vigilant on inflation as many investors were anticipating and therefore expectations for an August rate rise have been severely muted. The Dollar came under further pressure yesterday against the Euro amid some disappointing manufacturing data where the ISM index posted an unexpected drop for a second month in June as companies curb expansion in the face of rising energy costs.
Data Released 4th July
EU 10:00 Producer Price Index (May) EU 10:00 Unemployment Rate (May)
Euro-zone manufacturing expands at the fastest pace in six years as the ECB considers a more aggressive move towards monetary tightening
The Euro has been steadily gaining over the majors in the past couple of weeks, particularly the Dollar, as the outlook for higher euro-zone interest rates begins to gather momentum. Three members of the ECB's governing council publicly put forward their recommendation for a more aggressive move towards monetary tightening and therefore, the June ECB rate announcement later this week will take on added significance. It is widely expected that the Central bank will hold interest rates at 2.75% but much stronger than expected economic data has cast doubts over this sentiment as the ECB attempts to cope with the threat of global inflation and faster economic growth. There is a string of significant data released this week with the PMI surveys for manufacturing and services released today and Wednesday. In the figures released this morning, euro-zone manufacturing expanded at the fastest pace in six years for the second consecutive in month in June, which provides further evidence of growth and a strengthening economy and therefore raising the prospect for higher interest rates.
The prospect for a rise in UK interest rates has been severely dented in recent weeks, particularly since the untimely death of MPC member David Walton who was the only member of the eight-strong committee recommending a rise in UK rates from the current 4.50%. The BoE reconvenes on Thursday this week to announce their latest stance on monetary policy and the MPC are widely expected to hold rates for the 11th month in succession as they await a sustained pick-up in consumer sentiment. However, pressure for tighter monetary policy is growing and there is some significant data released this week, which should provide an indication of the strength of the economy with the UK manufacturing survey set to show further improvement in new orders in May with output expected to show modest gains of 0.1%.
The Dollar has been struggling since the FOMC rate announcement last Thursday after the Federal Reserve elected to raise U.S interest rates by a quarter point for the seventeenth month in succession as they attempt to stem the threat of higher inflation. However, the Dollar retreated after the language used in the accompanying statement looked less aggressive on the prospect of further monetary tightening in August although the Fed stated that "some inflation risks remain". The Dollar traded back towards 1.8450 against the Pound over night as investors shortened their odds for a further hike in U.S interest rates in August. There is a host of important data released in the States this week, most notably the monthly job report on Friday with growth expected to remain fairly muted in June, heightening the case for a pause in U.S interest rates. Nonfarm payrolls are widely anticipated to show that the economy added 168,000 jobs in June, down from 180,000 in May although the unemployment rate is expected to remain unchanged at 4.6%. There is also some significant U.S data released this afternoon with the ISM manufacturing survey and forecasters are anticipating a further decline in June, with the index falling from 61.9 in February to 53.7 in May, primarily due to a strong dollar and higher energy costs.
Data Released 3rd June
UK 09:30 CIPS Manufacturing Survey (June)
EU 09:00 PMI Manufacturing (June)
U.S 15:00 Construction Spending (May) U.S 15:00 ISM Manufacturing (June) U.S 15:00 Domestic Auto Slaes (June)
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