The Pound remains largely unchanged as UK producer price inflation accelerates in April
The Pound remained largely unchanged against the majors yesterday, falling a modest 0.1% versus the Euro following a host of positive economic reports as UK producer prices rose for a fifth straight month in April. The so called factory-gate inflation grew 0.5% from the previous month, which underlines concerns within the Bank of England that companies will continue to hike prices and stoke the current inflationary pressures. Over the past month, the Bank of England had to publicly account for the fastest pace of consumer price inflation in over ten-years and therefore the index this morning will be of particular interest to policy makers. Consumer prices are expected to have moderated to 2.8% year-on-year in April after increasing to the highest level since 1997 in March with UK inflation staying above the 2.0% target for the 12th consecutive month. The report may provide further evidence that higher interest rates have yet to cool the economy and following the BoE's decision to lift rates last week, we can expect at least one more quarter-point increase this year. Elsewhere, the Pound also remained firm after a separate report yesterday showed that UK house prices rose 1.1% in March with the average cost of home up to £206,890. The report from the Department for Communities and Local Government mirrors recent figures from the Nationwide and Halifax, which have both shown buoyant growth in the housing market this year.
The positive sentiment surrounding the Euro continued yesterday as the single currency remained firm against the Dollar and also rose modestly against the Pound despite a fundamental lack of economic indicators. Euro-zone industrial production increased beyond initial expectations with the headline figure up 0.4% in March although downward revisions in February left output virtually unchanged. The sustained and unrelenting strength of the Euro in recent weeks is expected to have a negative impact on European exports, which has previously supported the fastest economic expansion in six years. In terms of economic data, the focus today will fall heavily on flash estimate of Euro-zone GDP in the first quarter and the Euro may come under some pressure if the report shows that growth has stagnated in the first three months of 2007. Recent reports in Germany have indicated that investors are becoming increasingly concerned over the direction of economic growth and the figures this morning may show that the annual pace of GDP slowed to 2.9% from 3.3% in the final three months of 2006.
The Dollar managed to consolidate on the recent gains made against Sterling yesterday as we continue to trade well underneath the trend support at 1.9875 with further downward movement expected over the coming weeks. There is a host of significant economic indicators released this afternoon that could potentially influence the Dollar with the focus falling on the monthly consumer price index. The headline measure of U.S inflation rose to 2.8% year-on-year in March, primarily as a result of near-record fuel prices. Consumer prices are widely expected to rise for a fifth straight month in April with core inflation forecast to moderate to an annual pace of 2.6% last month. The U.S economy has been growing at the slowest pace in nearly four years in the first quarter although that has yet to cool inflation, which will keep the Federal Reserve from cutting interest rates in the near-to-medium term. In addition, the Dollar may also find support from the Empire State index as manufacturing in the New York region accelerates dramatically in May and provides further evidence of a revival in the sector. However, a separate report from the National Association of Home Builders' may show that the renewed weakness over the past two months will portray further softening in the U.S housing market in May.
Data Released 15th May
UK 09:30 Consumer Price Index (April)
- RPI
EU 10:00 GDP (Q1 Flash Estimate)
EU 10:00 EC Quarterly Growth Forecasts
U.S 13:30 Consumer Price Index (April)
- Core CPI
U.S 13:30 Empire State Index (May)
U.S 14:00 TICs - Net Capital Inflows (March)
U.S 18:00 NAHB Housing Market Index (May)
written by Adam Solomon
Posted at: 09:14
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