The Pound fails to advance despite UK house prices rising by the most in four years
Following on from last week, the Dollar relinquished much of the earlier gains against the majors on Friday as the advanced estimate of U.S gross domestic product showed that the economy grew at the slowest pace in four years in the first quarter. The report from the Commerce department confirmed an annual growth rate of 1.3% in the first three months of the year, which was significantly slower than expected following the dismal performance of the housing market and the ever-widening trade deficit. The primary driver of economic expansion has been consumer spending while a separate gauge of the report showed that a measure of inflation rose at a faster pace. Therefore, the focus today will undoubtedly fall on the personal income and expenditure report, which is expected to confirm that the Fed's preferred gauge of inflation rose at an annual rate of 2.2% in March. The renewed risks to price stability have been sourced to a jump in oil prices over the last quarter and with inflationary pressures still a concern to policy makers, it is unlikely that U.S interest rates will be cut in the short-to-medium term. Elsewhere, the Dollar may come under pressure later this afternoon as a report on the U.S manufacturing sector is expected to provide the first insight into activity at the start of the second quarter. The Purchasing Manager's index is forecast to slow dramatically in April to a reading of 54.5 from 61.7 the previous month and the report will provide further evidence that the U.S slowdown is showing few signs of peaking.
In contrast to the U.S economy, economic growth in the Euro-zone has been gathering momentum this year despite higher interest rates, a strengthening Euro and the introduction of the German VAT increase at the start of the year. The Euro rose to equal a record high against the Dollar last week and has also been making steady gains against the Pound despite the fundamental lack of economic reports released. The single currency may continue that trend at the start of May as a barrage of economic reports increase the chances of further monetary tightening in the Euro-region. The EC sentiment index is expected to show that consumer and business confidence, which has been strengthening since early 2003, continued to rise in April as unemployment fell to a record low. As a result, the report will further strengthen the case of higher interest rates although a strong Euro will remain a concern to policy makers as the U.S slowdown continues to hamper Euro-zone export growth. Elsewhere, the Euro may struggle to consolidate on the recent gains as the Flash estimate of consumer prices is expected to show that inflation moderated from 1.9% to 1.8% in April.
Over the past couple of weeks, the Pound has increased to highest level against the Dollar since June 1981 as a report showed that UK inflation rose to a decade high in March and forced the governor of the BoE to write a letter of explanation to the Chancellor. Combined with the minutes from the Central Bank's last policy meeting, which showed two members of the committee recommended a further quarter-point hike in April, the chances of May interest rate rise has been completely factored into current market movement. The National Institute of Economic and Social Research has recently said that UK inflation will exceed the government's 2.0% target for another year because the BoE cut interest rates too far in 2005. The report also said that consumer price inflation will average 3.0% over the next quarter and stay above the 2.0% target until the second quarter of 2008. The Central Bank's current approach to tackling inflation focuses solely on keeping consumer prices in check and doesn't to take into account rising asset values, money supply and credit growth. In terms of economic data, the Pound has suffered mixed fortunes this morning as UK house prices increased by the most in four years in April according to the survey from Hometrack Ltd. Prices rose 0.7% on the month, which suggests that the property market has continued to expand despite higher interest rates while elsewhere, a gauge of consumer confidence declined over the same period, reflecting the fragile state of many household finances.
The Dollar rallies against the majors, dropping through the $2.00 barrier for the first time in a week
The Pound came under renewed pressure against the majors yesterday, dropping 0.5% versus the Dollar to close under the $2.0000 barrier for the first time in a week while Sterling also fell considerably against the Euro. Following another round of seemingly positive economic data, the Pound retraced back towards the major support level at 1.9875 and a clean break below that level is likely to see further downside movement. The UK currency failed to find some support despite a stronger-than-expected report on the property market as UK house prices rose that the fastest pace in four months in April. The average cost of a home increased 0.9% on the month despite initial forecasts projecting a 0.6% decrease and the report emphasised that demand remains high with the market weathering the highest borrowing rate in nearly six-years. House prices rose a staggering 10.2% from a year earlier and combined with faster-than-expected economic growth in the first quarter, the Bank of England have the scope to continue raising interest rates this year. However, the adverse reaction of the Pound yesterday in spite of the positive data yesterday suggests that the movement is largely technical after Sterling rallied to the highest level against the Dollar since June 1981 following the inflation report last week.
The Euro came within a whisker of touching the all-time high against the Dollar this week but retraced back to test the support at 1.3600 yesterday, dropping 0.3% on the session while the single currency also made robust gains versus the Pound. The positive sentiment surrounding the Euro is likely to continue over the coming weeks as a number of ECB governing council members have expressed concerns over the current risks to price stability and have paved the way for another rate increase in June. The Euro rose against Sterling as a report in Germany showed that a gauge of consumer confidence rose by more than expected in May as the index rose to a reading of 5.5 from 4.4 in April. The German government has also raised its economic growth forecast this week, saying that the economy will expand 2.3% this year from initial expectations of 1.7% and the report provides a further indication that the German economy is in the midst of a strong upswing. Record low unemployment is likely to continue to improve consumer sentiment despite the introduction of the value-added tax increase at the start of the year.
The Dollar managed to claw back some significant gains against Sterling yesterday, climbing 0.6% by the close of trading as we look to test the trend support at the crucial 1.9875 level. In last week, the U.S currency has declined to lowest level in over 25-years versus the Pound and on Wednesday fell to a near-record low against the Euro but from a technical perspective, the market was looking increasingly 'over-bought' and a retracement back was always inevitable. In terms of economic data, the Dollar may struggle to consolidate the gains made against the majors as the advanced estimate of U.S GDP is expected to show that economic growth slowed in the first quarter. The report may show that economy grew at the slowest pace in over a year in the first three months of 2007, led by the sustained slump in housing and business investment. Gross domestic product, the value of all goods and services, is expected to rise to an annual rate of 1.8% from 2.5% in the fourth quarter, the weakest since late 2005. The Federal Reserve has recently estimated that the U.S economy will perform at a moderate pace this year with consumer spending driving expansion as a slowdown in manufacturing and real estate shows few sings of abating. Therefore, the focus today will fall largely on the final estimate of the Michigan sentiment, which is expected to show that consumer confidence declined for a third month in April led by an increase in fuel prices over the same period.
The Pound continues to rise as UK economic growth accelerates in the first quarter
The negative sentiment surrounding the Dollar continued yesterday as the U.S currency fell to a fresh two-year low versus the Euro and also declined against the Pound despite a positive round of U.S economic data. Recent reports have suggested that the slump in housing has showed few signs of abating as sales of previously owned homes plummeted to the lowest level in four years last month. A separate gauge of the property market was released yesterday and showed that the sales of new homes actually rose for the first time in three months as builders added incentives in order to encourage first time buyers. Purchases of new homes rose 2.6% to an annual pace of 858,000 in March while the supply of unsold properties swelling the market unexpectedly declined. However, the surprising gain in sales only provides a glimpse of hope that a recovery in demand is taking shape with many investors speculating that the biggest slump in the sector for over 17-years will continue to hamper economic expansion. Elsewhere, the Dollar also failed to find some support after a separate report showed that U.S durable goods orders rose by much more than anticipated in March. Orders, including the volatile transportation gauge, increased 3.4% after a 2.4% gain in February and the report provides an indication that corporate spending is starting to recover in the first quarter.
The Euro remained largely unchanged against Sterling yesterday but increased to a near-record level versus the Dollar after business confidence in Germany rose for the second consecutive month. The Ifo sentiment index climbed to a reading of 108.6 in April, which represents the second-highest level ever achieved and indicates that the European economic growth will continue to accelerate in Europe's largest economy. Elsewhere, the Euro continued to make gains against the Dollar after the German government raised its growth forecast for this year to 2.3% from 1.7% previously estimated. Unemployment within the Euro-zone is currently at the lowest level on record, which has helped consumer spending in the wake of the introduction of the sales tax increase at the start of the year. In terms of economic data, the Euro may remain fairly strong this morning as a gauge of German consumer confidence rises in May, showing that sentiment remains at a level consistent with growth.
The Pound managed to consolidate back above the $2.00 level yesterday and remained largely firm versus the Euro as the preliminary estimate of UK GDP showed that the economy expanded faster than anticipated in the first quarter. Gross domestic product, the value of all goods and services, increased 0.7% in the first three months of the year, which matches the pace of the previous two quarters and suggests that higher interest rates have yet to curb growth. The UK economy is currently performing at the highest level in nearly three years and with the inflation above 3.0% over the past month, the BoE are widely expected to continue raising interest rates in the near to medium term. In terms of economic data, the positive sentiment surrounding the Pound may continue this morning as a report from Nationwide is expected to show that UK house prices increased a further 0.6% in April, which provides yet another indication that higher interest rates have done little slow demand.
The Dollar declines against the majors as U.S consumer confidence drops while existing home sales plummet to a four year low
The Pound managed to snap a three day losing steak against the Dollar yesterday and closed above the significant support level at $2.0000 despite a reasonably negative report on the UK manufacturing sector as the CBI's industrial trends survey weakened in April. Elsewhere, the Pound managed to remain fairly strong against the Dollar, gaining 0.2% on the session but dropped under 1.4700 for the first time in ten days versus the Euro. The governor of the Bank of England, Mervyn King, gave a testimony to parliament on UK inflation where he highlighted that there could be a "sharp" decline in the core rate of inflation over the next four to six months and reiterated that the MPC remains determined to bring inflation back within its 2.0% target. The Bank of England has lifted interest rates three-times since last August with the current benchmark lending rate at the highest level in five-years. Yesterday, the Bank of England said that the ongoing strength in the UK housing market was one of the main drivers of inflation and King's comments will only add to speculation that UK interest rates will rise to 5.50% next month. In terms of economic data, the Pound may come under some pressure this morning as the preliminary estimate of UK gross domestic product is expected to moderate to 2.8% in the first quarter. The report should provide an indication that the UK economy has peaked with growth stagnating from the fastest pace in three years at 3.0%.
The Euro continued to make strides against the Dollar yesterday, approaching a record high at 1.3369 while the single currency also make widespread gains versus the Pound despite a seemingly negative report on the Euro-zone industrial sector. Orders plunged -0.7% in February despite initial forecasts of a rise towards 1.0% and the report provides a further insight that the rising strength of the Euro is having a negative impact on European manufacturing and export growth. There has been widespread concerns that a strong currency will have a damaging effect on the economy and the report yesterday may have an influence on the ECB's decision to continue lifting interest rates. In addition, with Euro-zone production showing multiple signs of slowing, the focus this morning will fall on the German Ifo business climate index, which has risen to the highest level in a decade in recent months. Therefore, the Euro may come under some pressure if the index follows the same pattern as previous reports although initial forecasts suggests that the sentiment index probably rose for a second month in April.
The Dollar fell close to a fresh two-year low against the Euro yesterday, dropping 0.4% by the close of trading last night following a band of negative U.S economic data. The Conference Board's index of consumer confidence fell to the lowest reading in eight months in April on concerns over rising fuel prices and the wave of subprime mortgage defaults. The index fell to a reading of 104.0 this month from 108.2 in March and a separate gauge of the report showed that optimism in the job market had declined while the proportion who said they planned to invest in the property market was the lowest in over two years. Following the rapid and sustained slump in housing and manufacturing, the Federal Reserve have been largely reliant on a strong labour market in order to promote consumer spending and keep the economy expanding at a moderate pace. Elsewhere, the negative sentiment surrounding the Dollar continued as a separate report on the housing sector showed that sales of existing homes declined by more than anticipated in March. The report showed that house purchases dropped 8.4% last month to the lowest level in nearly four years and provides a further indication that the biggest slump in housing for over 17-years has shown few signs of peaking.
The Pound drops through the $2 Dollar barrier and declines for the third day in a row
The Dollar managed to consolidate against the majors yesterday after last week's sharp decline as the U.S currency rose 0.2% versus the Euro and a further 0.1% against the Pound, breaking through the major support at the $2.00 level. Despite the apparent lack of economic data released in the States, the U.S currency continued to build up momentum against Sterling and any dollar buyers would be well placed to insert a stop order in the market to protect against any further adverse movement. In terms of economic data, the Dollar may come under some pressure this afternoon as a report on the U.S housing market may show that existing home sales fell to the lowest level in three months. The dramatic and sustained downturn in the housing market has been a primary source of a slowdown in U.S economic growth and recent reports have indicated that the worst slump in over 17-years is showing few signs of abating. Home resales are expected to fall 4.3% in March to an annual rate of 6.40 million while separate reports have shown that subprime mortgage defaults are rising and that may swell the market with unsold properties as owners are reluctant to reduce prices. Elsewhere, the Dollar may come under further pressure this afternoon as a gauge of U.S consumer confidence is expected to show that the sentiment index dipped to a reading 105.0 from 107.2 in March. The U.S economy has been increasingly reliant on retail growth and a strong labour market but higher fuel prices may have had a negative impact on consumer spending over the past month.
The Euros rapid and unrelenting advance against the Dollar was halted yesterday as the single currency fell 0.2% versus its U.S counterpart amid a sparse supply of economic data released in the Euro-zone. However, the Euro has been making steady progress against the Pound and that trend may continue this morning as European industrial orders are expected to increase 1.1% in February. Despite the well publicised slowdown in the U.S, it seems that export growth will continue to drive the Euro-zone economy, which has been expanding at the fastest pace since 2000. Elsewhere, the French presidential election continues to dominate the news as the contest is refined to two contrasting political solutions to weak growth combined with high unemployment. French politicians have notoriously been vocal in their concerns over a strong Euro quashing export demand but that is seemingly having little influence on Euro-zone monetary policy with the ECB expected to raise rates to 4.00% in June.
After advancing to the highest level since June 1981, the Pound has endured three days of declines versus the U.S Dollar with many investors speculating that the Sterling rally may have peaked. However, recent reports have shown that UK inflation is at the highest level in over a decade at 3.1% and with house prices also rising in the first quarter, the Bank of England may need to raise interest rates beyond 5.50% next month. Elsewhere, average hourly earnings have also picked up over the past month as a strong labour market propels wage growth, which is likely to increase inflationary pressures within the economy. As a result, the Pound managed to push through the $2.00 barrier for the first time since September 1992 and continued rising to peak above 2.0100, which was adjudged to have been too rapid and the Pound looked relatively "over-bought". The subsequent reversal was well anticipated as we dropped to test the support around the $2.0000 level but with interest rates expected to rise in May, the Pound may receive further support and look to consolidate gains above that level. Nevertheless, the Pound may come under further pressure in the very near-term as a report this morning is expected to show that manufacturing remained fairly subdued in the first quarter. The monthly industrial trends survey is forecast to fall dramatically in April with the volume of output measure weakening to a reading of 5.0 from 8.0 the previous month according to Confederation of British Industry.
The Dollar may continue to decline amid a host of significant economic reports
Following on from last week, the Pound increased to the highest level versus the Dollar since June 1981 after a string of economic reports showed that UK inflation has accelerated to the fastest pace in a decade, fuelling speculation that the Bank of England will continue raising interest rates in May and beyond. The minutes from the Bank of England's last policy meeting showed that two members of the nine-strong committee voted in favour of a rate hike in April and that only increases the prospect of quarter-point rise in May. As a result, the Pound managed to consolidate against the Dollar, closing above the major support at $2.0000 but the sharp reversal that ensued has led to speculation that the Sterling rally may have peaked. In terms of economic data, the Pound remained fairly strong towards the end of the week as UK retail sales rose for the second month in succession in March. Sales increased 0.3% after a revised 1.6% rise in February and the report will only provide a further indication that higher interest rates have done little to dampen consumer spending. There is a sparse supply of economic data released in the UK this week but the preliminary estimate for gross domestic product is expected to show that the UK economy slowed in the first quarter after interest rates rose to highest level in 5-years.
The positive sentiment surrounding the Euro continued last week as the single currency increased to a near record high versus the U.S Dollar and managed to claw back some significant gains against the Pound by the close of trading on Friday. The Euros advance increased in momentum despite German producer price inflation slowing to the lowest level in over two years in March following the sudden drop in oil prices over the same period. The gauge of producer prices gave an indication that inflationary pressures within Europe's largest economy have moderated over the past month although we fully expect the ECB to retain a tightening bias and increase interest rates in June. There is a sparse supply of economic data released in the Euro-region this week with the focus falling on the German industrial sector. The Ifo business climate index for April is expected to increase modestly to a reading of 107.8 from 107.7 in March, not far short of December's record high. Elsewhere, the Euro may receive further support from the preliminary German CPI figures, which are expected to show that core inflation remains a concern to policy makers.
The Dollar has been in rapid decline over the past week, falling to the lowest level in 25-years versus the Pound and approaching a near-record low against the Euro as the dramatic slump in housing and manufacturing threatens the pace of economic expansion. The U.S formally has a "strong Dollar" policy and the U.S treasury secretary, Hank Paulson, came out in support of the ailing currency towards the end of last week, which did provide some initial support to the Dollar. There is a host of significant economic indicators released this week with the focus falling on the U.S housing market with both existing and new home sales expected to show that the sector remains depressed. The dramatic slump in housing has been the primary reason for economic growth slowing to such a degree and the advanced gauge of U.S GDP should confirm that the economy was expanding well below trend growth in the first quarter. Elsewhere, the Dollar may come under further pressure as a report on U.S consumer confidence is expected to show that sentiment fell dramatically to a reading of 105.0 from 107.2 in April, partly as a result of high fuel prices.
The Pound may decline sharply against the Dollar after achieiving the highest level in over 26-years
The Pound's recent resolve was tested yesterday as the UK currency fell for the first time in seven days, dropping 0.3% versus the Dollar after achieving a 26-year high earlier this week. A slump in global shares has seemingly prompted investors to unwind UK carry trades, which has sent the Pound trading lower, ending the longest winning streak since November last year. Recent economic reports have fuelled speculation that UK interest rates will continue to rise over the coming months as wage growth combined with higher inflation threatens the pace of economic expansion. However, the Pound dipped yesterday as investors shunned high-yielding currencies after equity markets in Europe and Asia slid and many economists have speculated that the Pound is now looking overly-stretched at the current levels. Sterling has gained 10% against the Dollar in the past year alone and this week we broke the $2.00 barrier for the first time since September 1992. Historically, the Pound has come under severe pressure in the months that follow a break above this level and therefore we have advised any Dollar buyer's to take advantage of the current price or at least place a stop order in the market. In terms of economic data, the Pound may remain fairly strong this morning as a report on UK retail growth may show that sales increased 0.5% in March while the annual pace may decline to 4.7% from 4.9% the previous month.
The Euro continued to rise against the Dollar yesterday, pushing towards the highest level in history at 1.3640 while the single currency also made widespread gains against Sterling despite the apparent lack of economic data released in the Euro-zone. German producer price inflation, which provides an indication of price pressures on the economy, slowed to the lowest level in over two years in March following the abrupt drop in oil prices over the same period. Producer prices increased 2.5% year-on-year last month, which represents the lowest reading since September 2004 and with the price of oil dropping 18% in just eight months, inflationary pressures have seemingly moderated in the 13-nations sharing the Euro. In addition, a report earlier this week has showed that consumer price inflation has remained below the ECB's 2.0% ceiling for the past seven months in succession but policy makers have retained a tightening bias and we fully anticipate Euro-zone interest rates to increase to 4.00% by June.
The Dollar managed to claw back some modest gains against the Pound yesterday but fell to a fresh two-year low versus the Euro as an index of U.S leading economic indicators rose for the first time in three months in March. The reports provides an insight into the future course of the U.S economy as the labour market continues to be the prime source of growth and factory orders increased beyond expectations. Elsewhere, a separate report showed that initial jobless claims fell to 318,000 in March from 335,000 the previous month but the latest report from the Labour Department has showed that the number of people out of work and claiming benefits actually fell less than forecast. The report provides the first indication of a softening in the U.S labour market as the figures show that employers are cutting workforces amid the sustained slump in housing and manufacturing sectors.
The Pound increases to the highest level versus the Dollar since June 1981
Initially, the Pound surged through the resistance level at 2.0105 against the Dollar yesterday morning and rose to its strongest level in more than 25-years following the release of the minutes from the Bank of England's last policy meeting. The report showed that the nine-strong monetary policy committee voted 7-2 in favour of a 'no change' this month while the two dissenters broke rank to recommend a further quarter-point rise. Despite the remaining members of the panel believing that inflation will slow over the coming months, the report yesterday reinforced expectations that UK interest rates will rise to 5.50% in May. In terms of economic data, the Pound received further support and increased the pressure on the Bank of England as a gauge of average hourly earnings showed wage growth at 4.6% in the three months to March. The Central Bank considers earnings below the 4.5% threshold as consistent with stable inflation and with consumer prices currently at the highest level in a decade, the chances of a 50 basis point hike have been severely increased. As a result, the Pound rose to the highest level against the Dollar since June 1981 but endured a sharp reversal later in the session as profit taking saw the U.S currency stabilise after hitting the 26-year low. Historically, the Pound has dropped significantly against the Dollar after breaking the $2 barrier, which was the case in 1991 and again in 1992 and therefore, Dollar buyers would be well advised to take advantage of the current level or at the very least place a stop order around the support at $2.00.
The Euro has managed to claw back some gains against the Pound in the past trading session and is also likely to achieve a record-high versus the Dollar as policy makers reinforce expectations of a further quarter-point rate hike in June. The single currency has increased dramatically against the Dollar over the past year and some European politicians have expressed concerns over moderating economic growth following the slowdown in the U.S, which should have a negative impact on Euro-zone exports. However, in spite of the Euro's strength, policy makers within the ECB's governing council remain optimistic that Euro-zone growth will be able to sustain momentum this year after accelerating to the fastest pace since 2000. As a result, the Euro will continue to drive forward against the weak U.S Dollar and may also make further strides versus the Pound with the ECB monthly bulletin expected to retain a hawkish rhetoric this morning.
The Dollar fell to a fresh two-year low versus the Euro yesterday and came under intense pressure versus the Pound as a number of U.S officials and policy makers remained coy about the recent Dollar decline. The U.S formally has a "strong Dollar" policy but U.S officials recognise that a weak currency should boost U.S exports and thusly reduce the ever-widening trade deficit. By the close of trading last night, the Dollar had managed to stabilise versus the Pound and the Euro and may reverse further gains this afternoon as an index of U.S leading economic probably rose in March for the first time this year. The Conference Board's index may rise 0.1%, signalling that slowing growth in the economy is struggling to overcome the slumps in Housing and factory output this year. However, it can be argued that the ongoing strength in the U.S labour market is continues to support consumer spending and that may be reflected in the index this afternoon.
The Pound consolidates above the $2 barrier as inflation quickens to 3.1% year-on-year in March
The Pound surged forward against the Dollar yesterday, rising to the highest level since September 1992 as we breached the $2 barrier for the first time since 'Black Wednesday'. The move was driven by contrasting inflation data as UK consumer price inflation accelerated to the fastest pace in a decade in March, which means that the governor of the Bank of England, Mervyn King, will be forced to write a public letter of explanation to the Chancellor. Consumer prices unexpectedly rose 3.1% over the past month as we continue to deviate from the government's 2.0% target and that will surely prompt the BoE to lift interest rates aggressively over the coming months. After inflation accelerated to such a degree, the market has now fully priced in a projected rate hike next month while speculation intensifies that the MPC may need to consider back-to-back increases in May and in June. In stark contrast, a report on U.S consumer inflation showed that core prices rose less than forecast in March and supports the Fed's view that inflation will subside as the economy slows.
Over the past month, Mervyn King has stated that he remains determined to contain inflation and the surge yesterday marked the first time that the Central Bank missed the 2.0% target by more than a percentage point since taking control of monetary policy in 1997. The Pound has continued to advance overnight and it seems increasingly likely that we will test the resistance at 2.0105 after closing last night at the highest level since Sterling was ejected from the European exchange rate mechanism in 1992. The focus this morning will fall on the minutes from the Bank of England's last policy meeting where the MPC elected to hold UK rates at 5.25%. Therefore, it will be interesting to gauge how the nine-strong committee voted in April and it is possible that there may be a three-way split with David Blanchflower expected to maintain his stance for a cut. Nevertheless, the Pound will be further underpinned by strong growth in the UK labour market with unemployment expected to remain unchanged at 2.9%.
The Euro managed to advance 0.3% against the Dollar yesterday but came under significant pressure versus a resurgent Pound as we fell towards the lowest level since late January in the aftermath of the UK inflation data. The single currency failed to prevent the fall despite yet another positive economic report from Germany where investor confidence rose the highest level in 10-months in April. The ZEW index showed that investor and analyst expectations increased to a reading of 16.5 this month, the highest since June last year and provides a further indication that growth in the economy is accelerating. Elsewhere, a separate report showed that Europe's trade balance increased to a surplus of €200 million for the month of February and the reports point to the need for further monetary tightening over the months. The market has factored in a 100% chance of an interest rate rise in June and recent report have suggested that the ECB's governing council will need to lift rates beyond 4.0%.
Data Released 18th April
UK 09:30 BoE MPC Minutes - April Meeting
UK 09:30 Claimant Count/Unemployment Rate (March)
UK 09:30 Average Hourly Earnings (3 months to February)
The Pound reaches the highest level against the Dollar since Black Wednesday
The Pound advanced against the Dollar yesterday and closed in on the illusive $2 level as signs of higher UK inflation pushed the Pound to the highest level since "Black Wednesday in September 1992. UK Producer price inflation rose by the most in 11 months in March as companies increased prices with rising inflationary concerns feeding into the economy. Output prices gained 0.6% in February and the report follows recent comments from a number of policy makers in the Bank of England who have reiterated concerns that companies are charging higher prices that will ultimately quicken the pace of inflation. The focus this morning will now fall heavily on the March consumer price index, which is expected to show that UK inflation held firm at the second highest rate in over 10-years last month. Consumer prices may have risen 2.8% year-on-year, the same pace as in February, and remains well above the Bank of England's 2.0% target. Therefore, the report this morning combined with the index of factory-gate inflation yesterday will surely increase the chances of a further interest rate rise in the very near-term. As a result, the Pound made rapid gains against the Dollar, rising to the highest level in 14-years to peak at 1.9939 yesterday and from a technical perspective, Dollar buyers would be well advised to place a stop order in the market to protect against a reversal.
The Dollar has been coming under severe pressure over the past few sessions despite recent comments from the Federal Reserve, which we designed to shift the attention away from interest rate cut over the medium-term. However, the U.S currency has plummeted to lowest level against the Pound in nearly 15-years and is also closing in on a record low versus the Euro as recent evidence suggests that the dramatic slump in housing has yet to peak while trade relations with China continue to be strained. In terms of economic data, the Dollar failed to find support yesterday afternoon despite a seemingly positive report on the retail sector. Sales rose by the most in three months in March, which suggests that rising incomes with continue to boost consumer confidence and drive economic growth this year.
The Euro continued to make gains against the Dollar yesterday and we are coming close to a record high against the U.S currency after reaching the best level for over two years at 1.3576. The recent strength of the Euro has been underpinned by a number of hawkish statements from a host ECB officials while robust economic growth has increased the chances of further monetary tightening. The single currency received a further boost yesterday as a gauge of consumer prices showed that Euro-zone inflation rose to 1.9% in March from 1.8% the previous month as we tick closer towards the Central Bank's 2.0% ceiling. The European Central Bank has raised interest rates on seven occasions in this tightening cycle and with record low unemployment combined with rising economic growth, there remains a significant risk that inflation will continue to accelerate and prompt the ECB to raise interest rates in the short-to-medium term. In terms of economic data, the Euro may continue making gains this morning as German investor confidence probably rose to the highest level in nine months in April. The German based ZEW index is expected to increase to a reading of 10 this month, which provides further evidence that the economy is weathering the effects of a U.S slowdown and a strong Euro.
The Dollar continues to slide against Sterling, dropping close to the lowest level since 1992
Following on from last week, the Dollar continued to fall against the majors on Friday and dropped to the lowest level against the Pound in over eight weeks despite a seemingly positive report on the U.S trade balance. The shortfall in trade came in at $58.4 billion against forecasts of a rise towards $60.0 billion and with the escalating tension between China and the U.S set to rumble on, the deficit in goods and services is likely to expand over the coming months. Elsewhere, a separate report showed the producer price inflation rose 1.0% in March and although the Core rate remained unchanged, the report conveys the Fed's message that persistent inflationary pressures remain a concern to policy makers. However, the Dollar continued to slide against the Pound, consolidating above the major support at 1.9820 and we are swiftly approaching the lowest level against Sterling since 1992. The U.S currency was further hampered by weak consumer data as the preliminary sentiment index showed that consumer confidence dropped for a third consecutive month in April following an increase in fuel prices over the Iranian fiasco. The Dollar may receive a timely boost today amid a plethora of economic reports with the focus falling on U.S retail growth, which is expected to show that sales increased 0.5% in March despite the downturn in consumer sentiment.
The Euro managed to make modest gains against the Pound last week and also rose to the highest level versus the Dollar in over two years despite the ECB's decision to keep interest rates on hold in the Euro-zone. The outcome of the announcement was very much anticipated and the focus was always going to fall on the accompanying press conference for clues on future policy. The chairman, Jean-Claude Trichet, used the same tone and language from the previous month but dropped the term "strong vigilance" from his statement, which dispelled the prospect of a further rate hike in May. However, the chairman did maintain a hawkish rhetoric and with European economic growth maintaining the fastest expansion in nearly seven years, the chances of a June rate increase have significantly improved. The Euro may continue making gains against Sterling this week despite the fundamental lack of data released in the Euro-zone as the core inflation reading this morning is expected to rise to 1.9% in February.
The Pound has been making rapid gains against the Dollar over the past week as a host of economic reports have showed growth in the UK retail sector while house prices continue to rise despite the Bank of England's decision to lift interest rates on three occasions since last August. A number of key data releases should provide some insight into the chances of a May rate increase this week as the focus will largely fall on the minutes from the BoE's last policy meeting. In March, one member of the nine-strong committee, David Blanchflower, voted for a cut in UK interest rates and there is a distinct possibility that he may do so again in April, given that there have been no further evidence of an increase in wage growth. However, the market will be looking for any change in stance from the remaining members and there is a chance that the minutes could reveal a three-way split, which would leave the likelihood of a May rate hike very much in the balance. In terms of economic data, the Pound may remain fairly strong this morning as a gauge of inflation is expected to show that producer prices rose 0.9% in March while output prices remained at 2.2% year-on-year from February.
The Pound rallys against the majors as UK house price inflation unexpectedly rises in March
The Dollar came under renewed pressure against the majors yesterday, dropping to the lowest level in well over two years versus the Euro while also declining to a fresh eight-week low against the Pound despite a seemingly hawkish report from the Federal Reserve. The minutes from the last FOMC rate announcement showed that policy makers altered the tone and language used in the accompanying statement, which indicated that the Central Bank have revised their forecasts over moderating inflationary concerns. The report has revived the prospect of further monetary tightening in the States despite the worst slump in housing in over 17-years but with inflation rising to a five-month high in February, the Fed may need to continue raising interest rates even as the economy slows. However, the Dollar failed to capitalise and continued to fall against both the Euro and the Pound yesterday, closing last night above 1.9800 for the first time in 7-weeks. Separate reports from the labour department did little to boost sentiment as import prices rose by the most since May last year ahead of the of the U.S trade data this afternoon. Following the renewed uncertainty surrounding relations between China and the U.S, the trade balance will come under further scrutiny over the coming months. The report this afternoon is expected to show that the deficit between goods and services rose above $60 Billion in February while China has reported this week that its trade surplus almost doubled in the first quarter from a year earlier.
Prior to the ECB interest rate announcement, the Euro made widespread gains against the majors but slipped 0.2% versus the Pound as the accompanying press conference diminished the prospect of a further quarter-point hike in May. The chairman of the European Central Bank, Jean-Claude Trichet, gave a strong indication that interest rates will continue to rise from the current 3.75%, saying that the governing council would act in a "firm and timely manner". The ECB will continue to monitor all risks to price stability but the omission of the term "strong vigilance" from the statement dispelled any chance of a rate increase next month. However, the tone of the press conference remained hawkish on inflation and therefore the ECB may continue lifting rates beyond 4.0% in June as the economy shows few sings of cooling after expanding at the fastest pace in two years. In terms of economic data, the Euro managed to remain relatively unchanged against both the Pound and the Dollar as the final estimate of Euro-zone GDP came out in line with expectations while Italian industrial production declined for a second month in succession. The European economy relies heavily on export growth and factory output and considering the underlying strength of the Euro is seemingly having a negative effect on export growth, the political pressures from France and Italy may have an influence on the timing of the next rate increase.
The positive sentiment surrounding the Pound continued yesterday as the single currency managed to make modest gains against both the Euro and the Dollar despite a worse-than-expected report on the UK trade balance. The deficit in goods and services rose more than anticipated in February, widening to £6.8 billion and the report provides further evidence that a strong Pound is having a negative impact on UK exporters. The UK currency has increased 13% versus the Dollar in the past year and that has led exports to fall to the lowest level in 18-months while a separate report from the BCC showed that manufacturers are struggling to raise prices. The British Chamber of Commerce has blamed the Bank of England's decision to raise interest rates three times since August as the primary reason for a lacklustre performance over the past quarter. Elsewhere, the Pound has received a further boost as a report from the Royal Institute of Chartered Surveyors has showed that house price inflation unexpectedly quickened in March after easing in the previous four months.
The Euro may rally as the market anticipates a hawkish rhetoric from the ECB chairman, Jean-Claude Trichet
The Pound continued to rise against both the Euro and the Dollar yesterday, trading close to a six-week high versus the U.S currency following a report from the UK Treasury, which announced that a plan was in effect to allow British multi-nationals to repatriate billions of foreign profits tax free. The Pound continued to make gains for the second consecutive session on speculation that the proposal would have a similar effect to the U.S Homeland Investment Act. The law gave U.S companies the scope to return foreign profit at a discounted tax rate and thusly boosted the Dollar 10% against the Pound in 2005. Elsewhere, Sterling received an additional boost as a report from the British retail consortium showed that sales registered the best reading in 11-months in March. Therefore, despite the recent slowdown in the manufacturing sector, the BoE are likely to continue monetary tightening in May with house prices rising 10% year-on-year in the first quarter while consumer demand shows no signs of slowing. In addition, a separate report yesterday from the International Monetary Fund suggested that a further quarter-point rise would be necessary in order to rein in inflation as the economy continues to grow at the fastest pace in over two-years. In terms of economic data, the Pound may come under some moderate pressure this morning as the UK trade balance is expected to show that the deficit in goods and services expanded to £6.4 billion in February following the slowdown in manufacturing.
The Dollar continued to fall against Sterling yesterday but remained largely unchanged versus the Euro amid tension caused by the release of the minutes from the Federal Reserve's last policy. A number of members of the Fed's policy setting council are due to speak this week and express heightened concerns over rising inflationary pressures while growth in the economy continues to slow. That sentiment was echoed by the International Monetary Fund yesterday as they cut their forecast for U.S economic growth by almost a full percentage point, saying that the sustained weakness in the housing market would continue to hamper expansion. The U.S economy is expected to grow 2.2% this year, which represents the weakest in five years compared with initial estimates of 2.9% just seven months ago. In terms of economic data, the Dollar may come under further pressure this afternoon as U.S import prices are expected to rise 0.6%, which may increase the gap in goods and services.
The Euro remained largely unchanged against the majors yesterday amid a sparse supply of economic data released in the Euro-zone as we build up to the ECB interest rate announcement this afternoon. The French trade deficit showed little improvement from the previous month as exports rose while imports also increased following a significant rise in energy costs. With the impending French presidential election, the focus has been largely focused on the problems caused by the strengthening Euro and the projected impact on Euro-zone exports, which accounts for a large percentage of economic growth. Therefore, the focus will fall heavily on the ECB press conference tomorrow afternoon where the chairman, Jean-Claude Trichet, may temper his hawkish rhetoric as the political pressure builds on the European monetary policy committee. If Trichet uses a softer tone and language in his accompanying statement, the Euro may come under significant pressure as the market anticipates the term "strong vigilance" to signal a likely rate hike in May. In terms of economic data, the Euro may remain fairly strong in the build up to the announcement as the final estimate of GDP is expected to stay unchanged at 3.3% in the fourth quarter. While a separate report may show that European industrial production increased 0.2% in February, taking the annual growth rate up to 4.1% following a rise in factory output over the same period.
The Pound continues to rise against the majors following a report from the UK Treasury
The Pound continued to rise against both the Euro and the Dollar yesterday, trading close to a six-week high versus the U.S currency following a report from the UK Treasury, which announced that a plan was in effect to allow British multi-nationals to repatriate billions of foreign profits tax free. The Pound continued to make gains for the second consecutive session on speculation that the proposal would have a similar effect to the U.S Homeland Investment Act. The law gave U.S companies the scope to return foreign profit at a discounted tax rate and thusly boosted the Dollar 10% against the Pound in 2005. Elsewhere, Sterling received an additional boost as a report from the British retail consortium showed that sales registered the best reading in 11-months in March. Therefore, despite the recent slowdown in the manufacturing sector, the BoE are likely to continue monetary tightening in May with house prices rising 10% year-on-year in the first quarter while consumer demand shows no signs of slowing. In addition, a separate report yesterday from the International Monetary Fund suggested that a further quarter-point rise would be necessary in order to rein in inflation as the economy continues to grow at the fastest pace in over two-years. In terms of economic data, the Pound may come under some moderate pressure this morning as the UK trade balance is expected to show that the deficit in goods and services expanded to £6.4 billion in February following the slowdown in manufacturing.
The Dollar continued to fall against Sterling yesterday but remained largely unchanged versus the Euro amid tension caused by the release of the minutes from the Federal Reserve's last policy. A number of members of the Fed's policy setting council are due to speak this week and express heightened concerns over rising inflationary pressures while growth in the economy continues to slow. That sentiment was echoed by the International Monetary Fund yesterday as they cut their forecast for U.S economic growth by almost a full percentage point, saying that the sustained weakness in the housing market would continue to hamper expansion. The U.S economy is expected to grow 2.2% this year, which represents the weakest in five years compared with initial estimates of 2.9% just seven months ago. In terms of economic data, the Dollar may come under further pressure this afternoon as U.S import prices are expected to rise 0.6%, which may increase the gap in goods and services.
The Euro remained largely unchanged against the majors yesterday amid a sparse supply of economic data released in the Euro-zone as we build up to the ECB interest rate announcement this afternoon. The French trade deficit showed little improvement from the previous month as exports rose while imports also increased following a significant rise in energy costs. With the impending French presidential election, the focus has been largely focused on the problems caused by the strengthening Euro and the projected impact on Euro-zone exports, which accounts for a large percentage of economic growth. Therefore, the focus will fall heavily on the ECB press conference tomorrow afternoon where the chairman, Jean-Claude Trichet, may temper his hawkish rhetoric as the political pressure builds on the European monetary policy committee. If Trichet uses a softer tone and language in his accompanying statement, the Euro may come under significant pressure as the market anticipates the term "strong vigilance" to signal a likely rate hike in May. In terms of economic data, the Euro may remain fairly strong in the build up to the announcement as the final estimate of GDP is expected to stay unchanged at 3.3% in the fourth quarter. While a separate report may show that European industrial production increased 0.2% in February, taking the annual growth rate up to 4.1% following a rise in factory output over the same period.
The Dollar declines as trade tensions between the U.S and China intensify
Despite the Bank of England's decision to keep UK interest rates unchanged last week, the Pound has managed to rebound sharply against the majors, increasing 0.6% versus the Dollar and 0.3% against the Euro following heightened speculation of further monetary tightening next month. With the housing market still showing gains in prices combined with above-trend inflation and increasing consumer optimism means that rates are likely to rise to 5.50% over the coming months. In addition, the Pound is also receiving support from the view that Japanese investors historically tend to invest their money abroad in search for higher yielding currencies at this time of year. In terms of economic data, Sterling has made further advances this morning as a report from the British Retail Consortium showed that UK retail sales rose at the fastest pace in 11 months in March. Home values have risen up to 10% over the past 12 months and the report this morning will only provide a further indication that optimism remains strong amongst the consumer despite borrowing costs being at the highest level in 5-years. A separate from the Nationwide building society has reiterated that confidence rose to the highest level in four months in March, which only conveys the message that the Bank of England have the capacity to continue raising interest rates. Elsewhere, the Pound may continue making gains this morning as the DCLG index on the UK housing market may show that prices continued to increase in February.
Initially, the Euro made rapid gains against the Dollar yesterday, increasing 0.6% versus the U.S currency to trade at the highest level in over two years as we build up to the ECB interest rate announcement and press conference this Thursday. The single currency also received a boost as German exports rose for the first time in four months in February while a separate showed that the French industrial production increased beyond expectations. Despite significantly higher borrowing costs, recent reports have provided a strong indication that growth will be able to sustain momentum this year exports rose 1.9% from January while French factory production increased 1.1%. The reports only emphasise that the Euro-zone economy will be able to supplement the slowdown in the U.S and maintain the fastest growth in nearly seven years.
The Dollar continued to fall sharply yesterday and reversed much of the gains made in the aftermath of the nonfarm payrolls data last week as tensions between the U.S and China intensified. A week earlier, the Dollar dropped rapidly on news that Washington planned to impose tariffs on China's subsidised paper industry and the situation escalated yesterday as the U.S complained to the World Trade Organisation, which prompted the Chinese to pull out of the G7 meeting this weekend. However, by the close of trading last night, the Dollar had rebounded from the lowest level in two years versus the Euro amid speculation that U.S policy makers will retain a tightening bias this evening. The focus today will inevitably fall on the minutes from the Federal Reserve's last policy meeting where the chairman, Ben Bernanke, may signal that policy makers are still focused on curbing inflation.
The Dollar rallys after non farm payrolls increase well beyond forecasts
Following on from last week, the Dollar managed to bounce back against the Euro and the Pound on Friday following the release of the monthly U.S job report, which showed that the economy added more jobs to payrolls than anticipated in March. Recent reports have provided some optimism that a strengthening labour market will offset the slumps in housing and manufacturing this year as non farm payrolls increased 180,000 while the jobless rate actually fell to 4.4%. The unexpected increase in employment combined with higher wage demands is providing a boost to consumer spending, which accounts for over a third of economic growth and is preventing the housing recession from spreading to other parts of the economy. Prior to the report, the Dollar was struggling against the Pound and the Euro but revisions to the previous two months showed that employers had added 32,000 more jobs than previously estimated. Elsewhere, average hourly earnings rose 0.3%, which provides an indication that inflationary pressures remain a factor and is likely to keep the Federal Reserve on red alert. Despite making rapid gains against the majors, the Dollar has fallen this morning after a U.S government report said it will file official complaints against China, raising concerns that the dispute over trade will escalate and slow growth in both economies.
The Euro managed to claw back some significant gains against the Pound towards the end of the week and also rose to the highest level in nearly two years versus the Dollar following a host of significant economic reports. The Purchasing Manager's index showed that growth in European service industries expanded at close to the fastest pace in six months in March. Consumer optimism has rebounded sharply in Europe with confidence rising to a six-year high following the imposed sales tax increase in Germany at the start of the year while unemployment has fallen to a record low. Therefore, it seems that service sector growth will be able to support economic expansion this year with growth expected to reach the fastest pace in a decade. As a result, we expect the European Central Bank to continue monetary tightening this year after raising interest rates seven times since late 2005. However, the ECB will probably hold rates at 3.75% on Thursday this week with attention switching to the accompanying press conference for clues on future policy. The chairman, Jean-Claude Trichet, has notoriously used a specific tone and language when delivering his statement and the market will be looking for the term, "strong vigilance" in order to start pricing in a likely rate hike in May.
The Pound came under considerable pressure last week following the Bank of England's decision to hold interest rates steady at 5.25% with policy makers choosing to ascertain the impact of three previous rate increases before a likely move in May. The Pound had made widespread gains against most of the high-yielding currencies in the build up to the announcement after economists priced in a slim chance that the MPC could move early in April with retail price inflation currently at the highest level in 15-years. As a result, the Pound declined after the committee elected to keep rates unchanged but with house prices accelerating to the fastest pace in over two years in the first quarter combined with robust growth in UK service industries, the BoE may need to increase rates for a fourth time next month. Elsewhere, the Pound came under further pressure as a separate report from the National Institute of Economic and Social Research said that UK growth slowed in the first quarter. Gross domestic product rose 0.5% down from 0.7% in the three months through December but the report also highlighted that the economy should expand fast enough to warrant a further quarter-rate increase this year.
The Pound continues to rise against the Dollar as UK service industries expand in March
The Pound managed to consolidate on the recent gains made against the Dollar, firming an additional 0.1% versus the U.S currency but Sterling fell 0.2% against the Euro by the close of trading last night as we build up to the Bank of England rate announcement this lunchtime. The decision from the monetary policy committee is finely balanced as recent evidence has suggested a slowdown in property prices while inflation continues to rise to the highest level in 15-years. The Pound has been rising this week amid speculation that the Central Bank could lift interest rates early in April but if the MPC decide to wait and asses the impact of previous rate hikes, Sterling will come under considerable pressure against both the Euro and the Dollar. Therefore, Euro and Dollar buyers would be well advised to place a stop order in the market to protect against any adverse movement in the aftermath of the announcement.
In terms of economic data, the Pound remained firm yesterday as a report on UK service industries showed that growth in the sector accelerated in March. The Index advanced to a reading of 57.6 from 57.4 in January according to the report from the Chartered Institute of Purchasing and Supply, which will only increase the pressure on the BoE to raise interest rates this month. Elsewhere, a separate report early this morning has showed that UK house price inflation accelerated to the fastest in pace in over two years in the first quarter of 2007. In the three months to March, values rose 11.1% from the same period in 2006 and it seems evident that growth in the property market has been able to supplement higher interest rates. However, the Pound has declined modestly against both the Euro and the Dollar this morning as a report on UK manufacturing showed that factory production surprisingly fell by the most in over a year in February.
The Euro managed to rebound against the Pound yesterday and also gained a further 0.3% versus the Dollar after a report on European service industries expanded at close to the fastest pace in six months in March. With unemployment falling to a record low combined with consumer confidence at a six-year high, it seems that growth in the Service sector will be able to support economic expansion this year despite the impending slowdown in exports. The Purchasing Manager's index slipped to a reading of 57.4 from 57.5 in February but it seems increasingly likely that European economy will be able to weather a slowdown in the U.S as growth is expected to reach the fastest pace in a decade later this year. Therefore, the European Central Bank will have plenty of scope to continue monetary tightening this year as several members of the governing council have expressed concerns over higher inflation in months ahead.
The negative sentiment surrounding the Dollar continued yesterday as a report from the Institute for Supply Management showed that U.S service industries grew at the slowest pace in nearly four years in March. The Dollar had made modest gains against the Pound prior to the release of the figure, which only adds to the pressure on the U.S economy following the slumps in housing and manufacturing. The ISM index slid to a reading of 52.4 last month and although a figure above 50 indicates expansion, it looks increasingly evident that rising fuel prices and a downturn in retail sales will prevent further growth in the sector. However, the Dollar did receive a timely boost yesterday as a report on the labour market showed that U.S companies added 106,000 jobs in March. The ADP employment report, which provides an insight in nonfarm payrolls tomorrow, showed that the labour market continues to show signs of growth with unemployment close to a five-year low.
Data Released 5th April
UK 09:30 Industrial Production (February)
UK 12:00 Bank of England Interest Rate Announcement
The Pound continues to rise against the majors as we build up to the Bank of England rate announcement tomorrow
The Pound continued to appreciate against the majors yesterday, rising to the highest level in 10 weeks versus the Dollar and also achieved a one-month high against the Euro as we build up to the Bank of England rate announcement tomorrow. The decision from the monetary committee policy is finely balanced with the market seemingly focused on the prospect of a further quarter-point increase as inflation remains well above the Central Bank's 2.0% target. In addition, growth in the retail sector has rebounded sharply over the past month and with strong consumer spending combined with persistently high house prices, there is a good chance that we will see interest rates rise to 5.50% tomorrow. The minutes from the Bank of England's last policy meeting seemed to suggest that the chances of a rate hike this month were remote as the committee voted 8-1 in favour of a no change with the one dissenter voting for a cut. However, it should be pointed out that the tone of last month's minutes will have little influence on the decision this month as the MPC has a history of sharp turnarounds in voting patterns. The Pound remained largely unchanged against the majors by the close of trading last night but the UK currency is expected to remain on the front foot as a survey from the Nationwide Building society showed that UK consumer confidence rose the highest level in four months. Record employment growth combined with rising house prices and the fastest pace of economic growth in over 2-years has heartened consumer confidence in spite of higher interest rates, which currently stand at a five-year high.
The Euro remained little changed against the Dollar yesterday and continued to decline versus the Pound following a distinct lack of economic data released in the Euro-zone with the sole report showing that producer price inflation came out largely in line with expectations. The single currency make receive a timely boost this morning as European service industries are forecast to expand at close to the fastest pace since July last month. The Purchasing Manager's index may have held at a reading of 57.5 in March after touching a six-month high in January while a reading above 50 indicates expansion. Service sector growth represents the largest proportion of the European economy and is helping to propel growth after unemployment fell to a record low and consumer confidence rose to the highest level in six years. The report should provide a good indication that the Euro-zone economy remains healthy with growth expected to achieve the fastest pace in a decade this year despite the slowdown in the U.S, which is likely to curb export growth. Elsewhere, the Euro may also rise following a report on European retail growth, which is forecast to show that sales increased 0.5% in February to an annual rate of 1.1%.
By the close of trading last night, the Dollar remained virtually unchanged against both the Euro and the Pound as we build up to the monthly Nonfarm Payroll numbers this Friday while a host of economic data has increased sentiment. A report yesterday showed that U.S retail sales increased 4.9% last week, which represents the biggest gain in two months while projections for March sales increased by upto 5.0%. Following the dramatic slump in housing and factory production over the past year, the U.S economy has been heavily resilient on consumer spending and therefore the report yesterday will provide optimism that retail growth will be able to support economic expansion this year. Elsewhere, the Dollar also received a timely boost as a separate report on the housing market showed that pending homes sales rose 0.7% in February, easing concerns that the worst slump in over 17-years will continue to worsen. In terms of economic data, the Dollar may stay fairly resilient this afternoon as growth in the U.S service sector may bounce back from the lowest level in nearly four years in March. The ISM index of non-manufacturing companies, which accounts for 90% of the economy, may rise to a reading of 55.0 in February, a sign that the economy is expanding at a moderate pace as previously forecast by the Federal Reserve.
The Pound rises against the majors despite an unexpected drop in UK manufacturing
The positive sentiment surrounding the Pound continued yesterday as the UK currency rose to the highest level against the Dollar in two months and also climbed 0.3% versus the Euro amid speculation that the Bank of England could surprise the market with a further quarter-point rate increase this week. Following a significant rise in retail price inflation over the past month combined with growth in the service sector and consumer spending. which has sparked widespread speculation that the MPC will lift interest rates beyond 5.25% in April. However, the committee voted 8-1 in favour of holding interest rates steady in March with the one dissenter, David Blanchflower, favouring a cut amid sustained growth in the labour market. Therefore, it remains likely that the Central Bank will wait for further evidence of slowing inflation and look to analyse the impact of three previous rate hikes since August last year. As a result, the Pound may come under significant pressure if interest rates remain on hold this Thursday and therefore Euro and Dollar buyers would be well advised to place a stop order in the market to protect against adverse movement. The Pound also received a boost yesterday following a report from the Bank of England, which showed a sharp rise in UK mortgage equity withdrawal in the fourth quarter of 2006. The report showed that Britons borrowed the most against the value of their homes in nearly three years and provides further evidence that surging property prices are supporting consumer spending. Elsewhere, the Pound also managed to remain firm despite a report on the UK manufacturing, which suggested that growth in the sector unexpectedly slowed in March.
The Euro rose modestly against the Dollar yesterday but came under further pressure versus the Pound following the release of the Purchasing Manager's index, which showed that growth in European manufacturing unexpectedly slowed in March. Following the slowdown of economic growth in the U.S, exports out of the Euro-zone have been severely reduced while the tax increase in Germany has hampered consumer spending in the first quarter. The PMI index fell to a reading of 55.4 last month, the lowest in over a year, although a figure above 50 indicates expansion. However, the likelihood of persistent softness in Euro-zone manufacturing over the coming months is unlikely to affect monetary policy with the ECB expected to raise interest rates up to three more times this year. In terms of economic data, the Euro may continue to struggle against Sterling today as an index of inflation is expected to show that producer prices fell to 2.8% year-on-year in February from 2.9% the previous month.
The Dollar eased 0.1% against the Euro yesterday and fell significantly versus the Pound after a survey from the Institute of Supply and Management showed that growth in manufacturing slowed in March while an index of costs rose to the highest level since August. The sustained weakness in the housing sector and auto demand has reined in factory production as the index fell to a reading of 50.9 from 52.3 in February. The drop in manufacturing falls in line with a separate report from the Commerce department last week, which showed that durable goods orders fell for a second month in succession in February, reflecting companies reluctance to buy new equipment until inventories are reduced further. As a result, the negative sentiment surrounding the Dollar continued and we can expect further weakness this afternoon following a report on the U.S housing market. The slump in housing and construction looks set to weigh on economic expansion this year with pending home sales expected to fall 1.6% to a reading of 107.0 in February.
The Pound makes widespread gains as we build up to the Bank of England rate announcement
Following on from last week, the U.S Dollar failed to consolidate on the initial gains made against the Euro and the Pound after a gauge of business activity showed an unexpected increase in consumer spending while a rising inflation reduces the prospect of a cut in interest rates over the coming months. The Personal income and expenditure report, which combines the Fed's preferred measure of U.S inflation, showed that growth in wages and employment gained 0.6% in February and may offset the negative impact of rising fuel prices and weakening home values. However, the Dollar came under further pressure against the majors, dropping to the lowest level in a week versus the Euro after the U.S decided to apply new tariffs on imports from China. The Dollar weakened as speculation mounted that the move would reduce trade flow with the world's largest holder of foreign reserves while the escalated tension in the Middle East also prompted a Dollar sell-off. There is a host of significant economic data released in the States this week, which should provide a further insight into Dollar sentiment with the focus falling on the March non-farm payrolls report. Despite the fact that Friday will be a market holiday, the monthly U.S job report is expected to show that the economy added 135,000 jobs to payrolls last month with the unemployment rate rising to 4.6%. The Dollar may weaken further this afternoon with an industry report expected to show that the headline measure of U.S manufacturing declined to a reading of 51 in March as the slowdown in residential housing investment is likely to weigh on output.
The positive sentiment surrounding the Euro continued on Friday after a host of economic reports supported the prospect of further monetary tightening in the Euro-zone. The EC sentiment index showed that confidence in the European economy unexpectedly rose to highest level in six years in March as unemployment fell to a record low at 7.3%. The reports indicate that economic growth, which accelerated to the fastest pace in six years in 2006, will be able to sustain that momentum this year and with inflation edging towards the Bank's 2.0% target, we can expect another rise in interest rates over the coming months. In terms of economic data, the Euro may stay broadly unchanged against the majors as the Purchasing Manager's index into European manufacturing is expected to remain at an elevated level in March with a reading above 50 indicating growth. Following the robust rebound in European confidence last month combined with record low unemployment, the February report on retail growth may show that sales bounced back from a 1.0% drop in January. Elsewhere, the market will be paying particular attention to comments from a number of ECB officials this week as we look for some direction on future policy with next scheduled rate announcement after Easter.
The Pound has managed to make robust gains against the majors over the past trading session despite the added tension and nervousness in the market following the escalating tension in the Middle East, which has sent oil prices surging to the highest level in six months. The focus this week will undoubtedly fall on the Bank of England rate announcement this Thursday and a further rise in UK rates cannot be ruled out after inflation rose to 2.8% in February while the RPI index increased to the highest level in 15-years. Further evidence of mounting price pressures are expected to be highlighted in the data released prior to the announcement with the headline measure of UK manufacturing expected to remain near the yearly highs in February. Higher inflation has encouraged manufacturers to increase prices and with service sector growth holding steady at 3.8% later this week, there is little hope of pricing pressures moderating. In addition, consumer sentiment has remained strong over the past month, which has reverberated through to UK retail growth and therefore, the Bank of England have plenty of scope to raise interest rates early this month. However, the consensus still suggests that the Monetary Policy Committee will hold interest rates steady at 5.25% and that may weigh on Sterling sentiment.
Registered Company Name: Tor Currency Exchange Limited. Registered in England & Wales, Number: 5193147.
HM Revenue & Customs Certificate of Registration for Money Laundering Regulation, Number: 12191606.
