The Dollar continues to make gains following the release of the minutes from the last FOMC rate announcement
The recent positive momentum surrounding the Dollar continued yesterday as the U.S currency rose a further 0.2% against the Pound while also making modest gains versus the Euro amid the release of the minutes from the Federal Reserve's last policy-setting meeting. The chairman of the Fed, Ben Bernanke, released a statement last night, which seemed to suggest that policy makers are concerned over the effects of the housing recession in terms of economic growth while inflation still remains elevated. The FOMC left their benchmark interest rate unchanged at 5.25% on the 9th May and have seemingly adopted a neutral stance on monetary policy with Fed officials anticipating that economic growth will rebound in the second half of the year. A separate report yesterday from ADP employer services showed that U.S companies had added 97,000 jobs in May, which increased significantly from the previous month and provides an insight into the nonfarm payrolls report tomorrow. The Dollar may come under some pressure against the majors this afternoon amid a host of economic data with the focus falling on the revised estimate of U.S gross domestic product. The report is expected to show that economic growth, which has already slowed to the weakest level in four years, will be revised even lower as the U.S trade deficit continued to widen in the first three months of the year.
The Euro managed to consolidate on the recent gains made against the Pound yesterday but continued to the downward momentum versus the Dollar following a surprisingly negative report on European retail growth. Sales fell for the first time in three months in May as the index dropped to a reading of 48.4, a four month low, from 54.6 in April. The report provides an indication that rising interest rates combined with the introduction of the German VAT increase at the start of year are beginning to weigh heavily on consumer sentiment. In addition, the figures yesterday add to recent economic indicators, which have shown that the European economy, which has been expanding at the fastest pace in seven years, may have reached its peak. Elsewhere, the Euro did receive some support as ECB governing council member, Nicholas Garganas, said in an interview yesterday that the Central Bank would probably raise its inflation expectations next month and may raise interest rates beyond June. Therefore, the focus today will fall on the EC sentiment indices for business and consumer confidence, which are expected to remain at levels consistent with a robust pace of growth after achieving a six-year high in April.
The Pound declined for the second consecutive day yesterday, dropping modestly versus the Euro and the Dollar following a distinct lack of economic data released in the UK. The Pound has continued that trend this morning as a report from the Nationwide Building Society showed that UK house prices rose at a slower pace in May. The report provides an indication that property price inflation may have peaked after interest rates rose to a six-year high this month. The average cost of a home rose just 0.5% to £181,584 in May following an aggressive 0.9% increase the previous month and it seems increasingly likely that higher borrowing costs are beginning to slow the housing market. In terms of economic data, the Pound may continue to decline this morning as a report from the Bank of England is expected to show a modest drop in UK mortgage approvals last month. Elsewhere, a gauge of consumer sentiment may remain unchanged this month while the confederation of British Industry are expected to report a large drop in the distributive trades survey.
The Euro makes rapid gains following a host of positive statements from a number of ECB officials
The Euro managed to snap a four-day losing streak against the Pound yesterday, rising 0.3% versus the UK currency and the U.S Dollar following a number of hawkish statements from ECB officials. The President of Bundes-bank, Alex Weber and a member of the European Central Bank's governing council both supported the single currency as their comments increased the chances of further monetary tightening beyond the projected June rate increase. The Central Bank have raised European interest rates on seven occasions since late 2005 and following a statement from the chairman, Jean-Claude Trichet, earlier this month a June rate hike seems inevitable. Despite inflation staying below the ECB's 2.0% ceiling for the past five-months, it seems that the governing council believe that inflationary pressures will continue to rise over the coming months as growth in the economy gathers momentum and performs at the fastest pace in seven years. In terms of economic data, the Euro may remain on the front foot this morning amid the release of M3 money supply data, which is expected to show a modest decline in the three-month moving average for April but should still remain a concern to policy makers.
The recent strength of the Pound has been gathering momentum over the past week following the release of the minutes from the BoE's last policy setting meeting where it was revealed that the committee voted 9-0 in favour of a rate increase this month. The overwhelming support for a fourth quarter-point rise since August increased the chances of further monetary tightening over the coming months and as a result, the Pound made significant gains against both the Euro and the Dollar. However, recent economic reports have indicated that rising borrowing costs are beginning to slow the property market and further evidence of this was emphasised in a report from the British Bankers' Association yesterday. The number of mortgages approved for UK house purchases barely rose in April with lenders granting 64,815 loans, up from 64,183 a year earlier. The report underlines that consumers are becoming increasingly concerned with the prospect of higher interest rates after the BoE increased the benchmark lending rate to the highest level in six-years earlier this month.
The Dollar managed to rise 0.3% against the Pound yesterday but failed to consolidate on the recent gains made versus the Euro despite a particularly positive report on U.S consumer confidence. The report showed that Americans are becoming increasingly optimistic over the direction of the economy and will continue to spend despite record high petrol prices and slumping home values. The conference board's index rose to a reading of 108.0 in May from a revised 106.3 the previous month, which was the lowest level in five months. However, a resilient labour market combined with robust wage growth is helping fuel consumer spending and support economic growth in the face of the worst slump in housing for over 17-years. A nationwide survey showed that home values dropped 1.4% from the first quarter of 2006 and represents the first annual decline since 1991. However, the robust growth in the U.S labour market means that Americans are feeling more secure about their jobs with the unemployment rate currently at the second-lowest level in over six years. As a result, the Dollar made widespread gains against both the Euro and the Pound and that trend may continue this afternoon amid the release of the ADP employment report.
The Dollar may find some support as U.S consumer confidence rebounds from the lowest level in eight months
Following on from last week, the Pound managed to consolidate on the recent gains made against both the Euro and the Dollar and headed for its first weekly gains in over a month amid widespread speculation that the Bank of England would continue raising interest rates this year. In addition, a report on Friday showed that the UK economy had accelerated at a faster pace than initially forecast in the first quarter, spurred by robust consumer spending and increased business investment. The revised estimate of UK gross domestic product rose 2.9% from 2.8% in the first three months of 2006 as rising house prices helped the economy grow at the fastest pace in nearly three years. However, the robust pace of economic growth is also fanning the flames of inflation, which has exceeded the BoE's 2.0% target for the majority of the past year and leads investors to speculate that further rate hikes are imminent. Elsewhere, a separate report from the Confederation of British Industry showed that an index of prices among UK manufacturers reached the highest level in 12-years in May. The significance of the report is that companies continue to raise prices, which in turn leads to higher wage demands and a spiral in inflation.
The Euro has remained relatively unchanged after the Bank holiday and is still struggling against both the Pound and the Dollar ahead of a key week in terms of European economic data. Growth in manufacturing and the EC sentiment indices are expected to remain at levels consistent with a robust pace of growth while the unemployment report on Friday is expected to remain near a record low at 7.2%. Elsewhere, the Euro may find further support as European consumer confidence probably remained near the highest level in six-years in May as the sentiment index held steady at a reading of 111.0. Recent economic indicators have increased the possibility that the growth in the economy will eclipse that of the U.S for the first time in six years in 2007. A major concern for ECB policy makers has been the projected impact of a U.S slowdown in terms of exports but the resilience of the Euro-zone economy has strengthened the Central Bank's resolve to continue raising interest rates this year.
The Dollar managed to find some support towards the end of last week, rising modestly against both the Euro and the Pound following a report on the U.S housing sector. The unexpected and robust growth in the sales of new homes prompted renewed speculation that the dramatic slump in the market had peaked and would begin to contribute towards economic growth in the second half of the year. In terms of economic data, the renewed sentiment for the Dollar may continue this week with the focus falling on the monthly U.S job report this Friday. Preliminary forecasts suggest that the economy added 125,000 new jobs to payrolls in May, up from just 88,000 the previous month as the market looks for any insights into developments within the U.S labour market. The Dollar may find further support this afternoon as a gauge of U.S consumer confidence is expected to rise from the lowest level in eight months in May as strong wage growth boosts spending. Strong consumer sentiment has been a major contributor towards U.S economic growth this year and has thus far cushioned the economy from the underlying effects of slumping house prices and rising fuel costs.
The Dollar finds some support against the Pound as new home sales show the biggest monthly rise in 14-years
The Dollar managed to find some support yesterday, rising 0.2% against the Euro and a modest 0.1% versus the Pound following a report on the U.S housing market, which showed an unexpected rise in the purchases of new homes. Sales jumped by the most in 14-years in April, rising 16% to an annual pace of 981,000 and the report provides the single biggest indication that lower lending rates and added incentives are slowly spurring demand. Home construction has seen its worst recession since 1990 over the past two years, which correlates with the slowest pace of economic expansion in since 2003. New home sales accounts for roughly 15% of total home sales in the U.S and is widely considered the leading indicator of the housing market, which is slowly showing signs of recovery. In terms of economic data, the focus today will fall on the sales of previously owned homes with economists anticipating a no change from the previous month following the biggest monthly drop in 18-years. Coinciding with the report yesterday, it seems that the biggest slump in housing has finally reached its peak and will begin to contribute towards economic growth in the second half of the year. Elsewhere, the Dollar also received a boost as orders for durable goods rose for the third straight month in April and provides an insight into the recovery in the U.S manufacturing sector.
The Euro has endured three days of losses against both the Pound and the Dollar this week and that trend continued yesterday despite a seemingly positive report on German business confidence. The Munich based Ifo sentiment index remained unchanged at a near-record reading of 108.6 in May and suggests that Europe's largest economy will continuing expanding at the fastest pace in seven years. The prospects of the German economy continue to look positive despite the VAT increase at the start of the year and the increased value of the Euro, which threatens to curb export demand. Elsewhere, a separate report this morning showed that German consumer confidence rose to the highest level in five months in April as a rise in economic growth combined with increased wage growth helped improve household spending.
The Pound is heading for its first weekly gains against the Dollar in nearly a month and has also improved dramatically versus the Euro amid speculation that the Bank of England will continue raising interest rates in the near-to-medium term. Prior to the minutes from the May policy-setting meeting, the Pound had been struggling against the majors with inflation felling below a decade high at 3.0% as four rate hikes since August looked to be having the desired effect. The Pound managed to consolidate on the recent gains made yesterday as the Confederation of British Industry released their monthly industrial trends survey. The report showed that growth in manufacturing underpinned initial expectations and reinforced the chances of further monetary tightening in July or August. The UK currency has continued to advance in early trade this morning ahead of the revised estimate of UK economic growth in the first quarter, which is expected to conform that the economy maintained the pace of expansion in the first three months of 2007.
The Pound advances against the majors as the MPC voted unanimously to raise interest rates in May
The very recent revival of the Pound continued yesterday as the UK currency rose a further 0.7% against the U.S Dollar and an additional 0.4% versus the Euro following the release of the minutes from the Bank of England's last policy meeting. The report revealed that the monetary policy committee voted unanimously to raise UK interest rates in May to the highest level in 6-years in an attempt to curb inflation. The accompanying statement seemed to suggest that a further tightening of UK interest rates would be required in the near future with the nine-strong committee agreed that the economy may continue to expand. The voting pattern of this month's announcement has surprised investors as it was widely anticipated that at least one member would vote against a May rate increase. Therefore, a back-to-back rate rise in June has become a real possibility although it is more likely that the Central Bank would look to raise in July or August and assess the impact of four previous rate hikes. The Pound rallied strongly in the aftermath of the report and may continue to make gains this morning following a report from the Confederation of British Industry.
The Euro continued to decline against Sterling yesterday but bounced back versus the Dollar, rising 0.3% by the close of trading last night following a surprisingly strong surge in European industrial orders in March. In addition, the single currency also received a timely boost as German business confidence held near a record level in May, which suggests that the German economy will continue to expand at the fastest pace in nearly a decade. The Ifo sentiment index remained unchanged at a reading of 108.6 this month despite initial forecasts of a moderate rise towards the highest level since record began in 1991.
The recent positive sentiment surrounding the Dollar has deteriorated this week as the U.S currency fell for a second consecutive day following the distinct lack of economic data released in the States. However, the Dollar may find some support this afternoon as a report may show that orders for U.S durable goods is expected to rise for a third consecutive month in April. A sustained rebound in manufacturing is helping demand for factory goods and business equipment and may neutralise the worst slump in housing since 1990, which has threatened to propel the economy to the brink of recession. The chairman of the Federal Reserve, Ben Bernanke, has previously stated that a drop in subprime mortgage lending is likely to curb growth in home sales this year and that sentiment is expected to be echoed in separate report from the Commerce Department. Sales of new homes may of remained near a seven-year low in April, rising to an annual rate of 860,000 as home construction sees its worst recession since January 1990.
The Euro continues to decline against the Pound despite a rise in German Investor Confidence
The Euro declined for a second consecutive day against the Pound, dropping 0.3% by the close of trading last night while also holding near a six-week low versus the U.S Dollar despite a seemingly positive report on German investor confidence. The ZEW Centre for Economic Research said its index of investor and analyst expectations increased to a reading of 24.0 in May, the highest level since June 2006 as economists raised their forecasts for economic growth this year. The report yesterday provides an insight into the pace of economic expansion, which has seen the economy grow at the fastest pace in seven years. European economic growth has continued to gather momentum despite consistently higher interest rates and the introduction of the value-added tax increase at the start of the year, which has prompted the government to raise its forecast for 2007 to 2.3% from 1.7% previously estimated. However, the Euro failed to capitalise on the strength of the ZEW survey and declined against both the Pound and the Dollar. In terms of economic data, the single currency may find some support this morning as German industrial orders are expected to advance 1.2% in March while rising to an annual rate of 7.1%. Although, given the overwhelming strength of the Euro in recent months, orders are expected to fall significantly in April as the single currency rose to a record high against the U.S Dollar.
The Dollar managed to rise modestly against the Euro yesterday and also held near a six-week high versus the Pound despite the distinct lack of economic data released this week. The recent strength of the U.S currency can be attributed to a sharp rebound in factory production and manufacturing output although the Dollar's recovery may be short-lived given that a number of medium-term factors that still pointed to weakness. In addition, the Dollar was supported by comments yesterday from the president of the Federal Reserve Bank of Richmond, Jeffrey Lacker, who seemed to suggest that inflationary pressures still remain a concern to policy makers despite slower growth. In the last four monetary policy setting meetings, Lacker has been the sole voice for a further rise in U.S interest rates and the hawkish tone of his speech yesterday further established his belief that price pressures are set to drift higher.
The Pound has been slowly making significant strides against the Euro over the past few trading sessions and also increased 0.1% versus the Dollar by the close of trading last night. The focus today will heavily on the release of the minutes from the Bank of England's last policy meeting where the MPC elected to lift interest rates for the fourth time in this tightening cycle to 5.50%. The nine-strong committee elected that a 25 basis point rise in the benchmark lending rate would be necessary in order to stabilise inflation, which has accelerated to the fastest pace in a decade this year. However, the voting pattern of the decision will be eagerly anticipated with the committee expected to have voted 8-1 in favour of a rise this month with David Blanchflower likely to lean towards a cut. If the outcome of the minutes proves indecisive and the committee's decision split, the Pound may come under some severe pressure against both the Euro and the Dollar.
The Euro declines against both the Pound and the Dollar ahead of the ZEW expectations balance this morning
The Pound managed to claw back some moderate gains against the Euro yesterday but continued to decline versus the U.S Dollar as a gauge of UK house prices advanced at slowest pace in five months. The report yesterday provided a strong indication that an increase in affordable housing combined with higher interest rates are slowly beginning to curb demand and thusly slow the booming UK property market. In addition, a separate report yesterday from the British Bankers' Association confirmed that a demand for mortgages is weakening, down 3.0% from a year earlier as the highest benchmark lending rate on six years discourages first time buyers. The Bank of England have lifted UK interest rates on four occasions since last August in a desperate bid to quell inflation but it is estimated that mortgage repayments have risen by up to £120 a month on a £200,000 property.
The Euro lost ground against Sterling yesterday and also fell an additional 0.4% versus the U.S Dollar despite the fundamental lack of economic data released in the Euro-zone. From a strictly technical perspective, the Euro has spent the last few trading sessions consolidating below the trend support at 1.4600 against the Pound but a sharp bounce back towards 1.4650 yesterday could help turn the technical outlook positive. In terms of economic data, the single currency may receive a timely boost this morning as the ZEW centre for economic research release the monthly expectations balance, which is expected to confirm that German investor confidence rose this month. The current conditions measure of the ZEW survey will be of particular interest to investors as the German economy continues to enjoy a period of rapid growth with the report this morning expected to increase the chances of further monetary tightening.
The renewed appetite for the Dollar continued yesterday as the U.S currency again made crucial gains against the Euro and also rose 0.3% versus the Pound to briefly trade under 1.9700. In recent months, the Dollar has declined to the lowest level in 26-years against the Pound and also fallen to a record low versus the Euro amid fears that global central banks may diversify their foreign exchange reserves away from the U.S currency. In addition, the dramatic slowdown in the housing and manufacturing sectors threatened to push the economy towards inevitable recession but recent reports have provided an indication that a weak Dollar is boosting demand for U.S exports while the downturn in the property market looks to have peaked.
The Pound continues to struggle as we build up to the release of the minutes from the BoE's last policy meeting
Following on from last week, the lacklustre performance of the Pound continued despite the hawkish tone of the Bank of England's quarterly inflation report, which seemed to suggest that a further tightening of monetary policy would be required in the near-to-medium term. That sentiment is expected to be further emphasised in the minutes from the Central Bank's last policy meeting released on Wednesday. The nine strong committee elected to lift UK interest rates by a further 25 basis points this month and the voting pattern of the eventual decision will be eagerly anticipated. The monetary policy committee are expected to have voted 8-1 in favour of a rise this month with the likely dissenter being David Blanchflower. However, should the outcome of the minutes prove indecisive and the committee's decision split, the Pound may come under some severe pressure against both the Euro and the Dollar. In terms of economic data, the Pound has fallen modestly this morning as a gauge of UK house prices rose this month at the slowest pace since December. Prices only climbed 0.4% to an average £237,361 compared to a 3.5% gain in April and the report provides an indication that an increase in supply combined with higher interest rates are slowly helping to cool the property market.
The resurgence of the Dollar has been the general theme over the past couple of weeks as the U.S Currency continues to make robust gains against both the Pound and the Euro. Confidence in the U.S economy has been somewhat restored over the past month as the rebound in manufacturing continues to gather momentum while the worst slump in housing for over 17-years is showing some signs of abating. There is a sparse supply of economic data released in the U.S this week with the focus falling on durable goods orders and the latest round of housing sales data.
The Euro has continued to make rapid gains against Sterling over the past week as we look to test the support level around 1.4600 while the single currency has come under some surprising pressure versus a resurgent U.S Dollar. That theme is set to continue over the coming trading sessions as a host of economic reports are expected to confirm further that the German economy performed better than previously anticipated. The current conditions measure for the ZEW survey of investor confidence is forecast to rise to a reading of 79.0 from 76.9 the previous month. In addition, the IFO survey for business sentiment is also expected to rise to a record level in May with both indices likely to strengthen expectations that European interest rates will continue to rise beyond June.
The Dollar makes widespread gains as reports suggest a mild revival in the U.S property market
The Pound came under renewed pressure yesterday, falling 0.4% against the U.S Dollar and a further 0.1% versus the Euro to trade at lowest level in two months following the release of the Bank of England's quarterly inflation report. The hawkish tone of the Central Bank reinvigorated the chances of another 25 basis point rise in UK interest rates but said that inflation was expected to moderate back towards target in the final quarter. The UK economy has expanded at the fastest pace in two years and the BoE reiterated yesterday that GDP growth has been maintained in the first quarter while credit and money growth remained consistent with previous estimates. With regards the future projections of UK inflation, the report reiterated that inflationary pressures remain to the upside in the medium term although were expected to moderate back towards the 2.0% target by the final quarter. As a result, the Pound declined against the Euro, dropping towards the lowest level this year at 1.4575 despite a separate report that showed UK unemployment fell to the lowest since 2005. However, average hourly earnings growth unexpectedly slowed in April, dropping to 4.5% from 4.6% the previous month, which suggests that inflation is clearly falling with earnings being the third indicator that has surprised to the downside.
The Euro advanced against Sterling yesterday but declined unexpectedly versus the U.S Dollar despite a host of hawkish statements from a number of ECB governing council members who reiterated the need for further monetary tightening. Earlier this month, the chairman of the Central Bank, Jean-Claude Trichet, gave a strong indication that interest rates would rise for the seventh time in little over a year in June. Initially, the single currency made rapid gains yesterday after the final estimate of Euro-zone inflation remained unchanged at 1.9% in April. The harmonised consumer price index came in slightly stronger than expected and suggests that risks to price stability remain a concern to policy makers. There is a sparse supply of economic indicators released in the Euro-zone this morning with the focus falling on the ECB monthly bulletin, which will probably contain the same hawkish tone as the accompanying statement and enhance the chances of a quarter-point rate hike in June.
The positive sentiment surrounding the Dollar continued yesterday as the U.S currency made widespread gains against most major currencies following the renewed optimism in the housing market. Builders started work on more new homes than anticipated in April with housing starts rising 2.5% from the previous month, suggesting that worst slump in the sector in 17-years is finally showing signs of abating. However, a separate gauge of the report showed that the number of building permits filed for new construction actually saw the slowest pace of growth in ten-years. In addition, a report earlier this week showed that the NAHB index of builder confidence sank to another decade low and the assumption that growth in the property market may accelerate over the coming months may be a touch premature. Elsewhere, the Dollar managed to consolidate on the recent gains made against the Pound as U.S industrial production increased beyond expectations in April. Factory output was up 0.7% on the month and it seems evident that a weak dollar as provided a reprieve for manufacturing as recent reports have reflected a revival of growth in the sector.
The Dollar declines as U.S consumer price inflation expands less than forecast in April
The Pound came under significant pressure against the majors yesterday, dropping close to the lowest level this year versus the Euro and closing last night under 1.9875 against the U.S Dollar. The decline of the Pound was instigated by a drop in consumer price inflation last month, which fell from a decade high of 3.1% in March to 2.8% in April. The report also highlighted that UK inflation exceeded the Bank of England's 2.0% target for the twelfth consecutive month. Combined with the unexpected rise in UK factory-gate inflation over the same period, it seems evident that higher interest rates have yet to cool the economy. Nevertheless, the Pound continued the downward momentum against the Euro, despite the report increasing the chances of further monetary tightening this year. In terms of economic data, the Pound may receive a timely boost this morning with UK unemployment expected to stay unchanged at 5.5% in April. The focus is likely to fall on a separate gauge of the report, which may show that average hourly earnings jumped from 4.6% in February to 4.8% in the three months leading to March. Policy makers within the BoE's monetary policy committee will be watching earnings growth closely as higher interest rates put downward pressure on consumers' disposable income. Elsewhere, the BoE's quarterly inflation report is likely to dominate and the theme of the report will be watched closely following a fourth interest rate hike in under a year.
The Euro continued to make gains yesterday, rising 0.4% against the Dollar and a further 0.2% versus the Pound following the flash estimate of European economic growth in the first quarter. The Euro-zone economy expanded by more than forecast in the first three months of the year as increased business investment supplements higher interest rates and the introduction of the German VAT increase at the start of the year. The economy grew 0.6% in the first quarter, which was slightly above initial expectations as European companies increased investment after strong export growth led to the fastest expansion in seven years. However, the Euro has appreciated over 10% against the Dollar over the past six months and reached a record high in April, which may hamper EU exports and weigh heavily on economic expansion over the coming months. The Euro may struggle to consolidate on the recent gains made against the Dollar this morning as the final estimate of Euro-zone consumer prices is expected to show that inflation remained unchanged at 1.8% in April and under the Central Bank's 2.0% target.
By the close of trading last night, the Dollar had declined against the Pound and also fell significantly versus the Euro following a report from the Labour department, which showed that U.S inflation was abating. Consumer prices rose less than forecast in April, increasing 0.4% from March to an annual pace of 2.3%, which may prompt the Federal Reserve to lower interest rates sooner than previously anticipated. The Fed have previously estimated that inflation would moderate as the economy continues to slow and the report yesterday heightens the chances of monetary easing in the second half of the year. In addition, the Dollar failed to find a reprieve as a separate report showed that manufacturing activity in the New York state expanded at a faster pace for the second consecutive month in May as foreign investors sought cheaper goods from the U.S. Recent reports from the Institute of Supply Management have suggested that a recovery in manufacturing will soften the impact of the dramatic slump in housing over the last year, which has contributed to slowest pace of economic growth in nearly 5-years.
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.
The Dollar continues to make rapid gains despite a fundamental drop in U.S retail sales
Following on from last week, the Pound managed to remain fairly unchanged against the majors on Friday after dropping significantly versus the Dollar following the Bank of England's decision to lift interest rates by just 25 basis points. In terms of economic data, the Pound received a timely boost on Friday as a report from the National Institute of Economic and Social Research showed that the UK economy expanded at 0.7% in the first quarter. Economic expansion matched the same pace as in the final three months of 2006 following the dramatic increase in service sector growth, which accounts for two thirds of UK gross domestic product. In a statement released last week, the BoE said that economic growth is 'firm' while upside risks to inflation remain, which provides an indication that the Central Bank intends to lift rates further this year. The focus this week will fall largely on the quarterly inflation report, which should provide an insight into last week's much anticipated rate increase. While elsewhere, the monthly consumer price index should reiterate upward inflationary pressures as retail price inflation moderates slightly from a decade high in March although a hawkish report should be supportive of the Pound.
The Euro has managed to continue making modest gains against Sterling as the European Central Bank gave a firm indication that Euro-zone interest rates are set to rise next month. The positive sentiment surrounding the single currency is likely to gather momentum this week as the ECB monthly bulletin is expected to reiterate the hawkish tone of the press conference, cementing an interest rate hike to 4.00% in June. Elsewhere, the final estimate of the harmonised consumer price index will be released later this week and is expected to show that the annual rate of inflation stayed below the Central Bank's 2.0% ceiling for the sixth consecutive month. The tone of the recent statement from the chairman, Jean-Claude Trichet, seemed to indicate that rates will peak in the near-to-medium term as inflation continues to fall over the coming months. In terms of economic data, the Euro may come under modest pressure this morning as a gauge of industrial activity in the Euro-zone may show that production dropped in March. The Euro has risen to a record high versus the Dollar in recent weeks and that should weigh on factory output as Euro-zone exports become less attractive to foreign investors.
The resurgence of the U.S Dollar continued to gather momentum last week, closing under the trend support at 1.9875 versus the Pound and also consolidating on recent gains made against the Euro. Dollar buyers would be well placed to work a stop order in the market to protect against any further downside movement despite a host of seemingly damaging economic reports. Growth in the U.S retail sector unexpectedly slowed in April with sales dropping 0.2% from the previous month as higher fuel prices and falling home values weighed on sentiment. The report will heighten concerns that a drop in consumer spending, which accounts for over two thirds of the economy, would continue to slow economic growth. Elsewhere, the Dollar remained firm as a separate report from the labour department showed that U.S wholesale prices rose just 0.7% last month. Excluding the volatile food and energy gauge, producer prices remained unchanged for a second consecutive month in April and the figures point to a gradual easing of price pressures, which will allow the Federal Reserve to keep interest rates steady.
The Pound declines heavily against the majors despite a fourth rate increase in 9 months from the Bank of England
The Pound came under severe pressure against the majors yesterday, dropping 0.4% versus the Euro and a further 0.9% against the U.S Dollar despite the Bank of England's decision to lift UK interest rates to the highest level in six years. Recent reports have suggested that consumer spending, which accounts for a large proportion of economic growth, has continued to accelerate in the first quarter despite the BoE lifting rates on three occasions since August. In addition, robust expansion in the labour market combined with strong housing sector growth drove UK inflation to 3.1% in April, the highest in a decade. As a result, there was widespread speculation that the monetary policy committee would adopt a more aggressive policy by raising interest rates 50 basis points and the focus now will fall on the minutes from the meeting released later this month. Elsewhere, the Pound failed to find any support has a host of economic reports suggested that UK manufacturing expanded by the most in ten months in March. Factory production rose 0.6% with exports increasing by the most since August, a sign that strong growth in Europe is bolstering demand for British based goods. Earlier in the day, a separate report from HBOS plc showed that UK house price increased at the second fastest pace in nearly two years last month, which provides an indication that the Bank of England will need to continue lifting rates beyond 5.50%.
The Euro managed to claw back some gains against Sterling yesterday but came under further pressure versus a resurgent U.S Dollar as the European Central Bank kept interest rates on hold in May. The outcome of the two day meeting was widely anticipated by the market and in the accompanying press conference, the chairman of Central Bank signalled for more rate increases to come. Jean-Claude Trichet has historically used a specific tone and language in his tenure as chairman of the ECB and yesterday announced that "strong vigilance is of the essence to ensure that risks to price stability do not materialize." In each of the past seven months prior to a rate hike, Trichet has used the exact same terminology and as a result, the Euro may continue to make gains leading up to the June announcement. The Euro-zone economy has been performing at the fastest pace in six years and concerns are still mounting that companies may increase prices and wages, which would only stoke the current inflationary pressures.
The Dollar managed to make rapid and significant gains against the Pound yesterday, crashing through the trend support at 1.9875 following the Bank of England's decision to lift rates by just 25 basis points. The resurgence of the U.S currency came about despite a seemingly negative report from the Commerce department, which showed that America's trade deficit had widened by more than forecast in March. The gap in goods and services trade expanded 10.4% from the previous month to nearly $64 billion as higher oil prices drove the biggest increase in imports for over four years. Nevertheless, the Dollar continued to make gains and that may continue this afternoon despite a report on U.S retail growth, which is expected to show that sales increased 0.4% in April. Consumer spending has supported economic expansion this year and further growth in the retail sector is likely to keep the Federal Reserve from cutting interest rates in the medium term. However, initial forecasts suggest that retail sales probably increased at the slowest pace in three months in April as near-record fuel prices combined with falling home values weighed on sentiment.
The Pound rallies as we build up to the BoE interest rate announcement this lunchtime
The Pound continued to make significant gains against the majors yesterday, rising 0.4% versus the Euro and the Dollar as we build up to the Bank of England interest rate announcement this lunchtime. The monetary policy committee are widely expected to lift the benchmark lending rate to 5.50%, the fourth quarter-point increase since August last year and the highest since April 2001. Over the past few weeks, there has been widespread speculation that the nine-strong committee including the governor Mervyn King may adopt a more aggressive policy since UK inflation is currently at the highest level in over ten years. However, following the downward revisions in service sector growth the chances of a 50 basis point jump are remote and as a result, the Pound may come under some pressure this afternoon if the Bank of England elect to lift rates by just a quarter of a point. In terms of economic data, the Pound has continued to advance this morning as the latest report on the UK property market showed that house prices rose in April at the second fastest pace since mid 2005. Elsewhere, Sterling may continue to strengthen in the build up to the announcement as a separate report this morning may show that industrial production accelerated in March with output up 0.5% from the previous month despite the profound strength of the UK currency. In addition, the Prime Minister Tony Blair is widely expected to announce his retirement today and may lend his support to the Chancellor Gordon Brown who handed the Bank of England the authority to set interest rates after coming to power ten years ago.
The Euro failed to capitalise against the Dollar yesterday and also came under further pressure versus the Pound as German exports unexpectedly declined in March, leading to speculation that a strong European currency would begin to slow the economy. The focus today will inevitably fall on the European Central Bank rate announcement this afternoon with the governing council expected to hold the benchmark lending rate at 3.75% in May. However, in the accompanying press conference the chairman of the ECB, Jean-Claude Trichet, is widely expected to signal a further quarter-point rise in June. The market has factored in a strong chance that rates will rise to 4.00% next month and we will be looking for a specific tone and language in the statement this afternoon with the term "strong vigilance" historically used as a sign rates will rise the following month.
The Dollar managed to hold steady against the Euro yesterday as the Federal Reserve elected to hold U.S interest rates at 5.25% for the seventh consecutive meeting while the accompanying statement was little changed from the previous month. It seems that the Fed chairman, Ben Bernanke, is unfazed by the weakest economic growth in four years as he reiterated his hawkish stance on inflation. The Open market committee remains concerned that U.S inflationary pressures have failed to moderate over recent months and that is likely to keep policy makers from cutting interest rates over the medium term. In terms of economic data, the Dollar may come under further pressure this afternoon amid a host of economic reports with the U.S trade deficit expected to widen for the first time in three months in March. The gap between imports and exports may grow above $60 billion as the price of crude oil rose over the same period to the highest level in six months.
The Dollar rallies against the majors as we build up to the FOMC rate announcement th evening
Following on from last week, the Dollar has resumed the upward momentum against the Pound despite a worse-than-expected report on the U.S labour market on Friday. The monthly nonfarm payroll numbers showed that the economy added the fewest amount of jobs to payrolls in over two years in April while the unemployment rate increased to 4.5%. The softening of the U.S labour market, which has supported economic growth this year, will be a concern to policy makers as higher fuel prices combined with lower wage growth may weigh heavily on consumer sentiment. The Dollar gained 0.2% against the Pound yesterday as we continue to test the trend support around 1.9875 while the focus this week will undoubtedly fall on the Federal Reserve interest rate announcement this evening. The chairman, Ben Bernanke, may give a clearer signal on U.S monetary policy after comments in April left investors speculating over the Central Bank's intentions. However, with U.S economic growth failing to gather momentum combined with seemingly moderating inflationary pressures, the Fed are likely to leave interest rates on hold at 5.25%. The U.S economy has been expanding at a 'moderate' pace this year as higher petrol prices, fewer jobs and a weakening housing market continue to hamper growth.
The Euro came under pressure against the majors yesterday, dropping 0.4% versus the Dollar as we scale back from the record highs achieved last week and a further 0.2% against the Pound. The single currency suffered as a barren run of economic data showed that German industrial production unexpectedly slowed in March as a strong Euro continues to weigh on European exports. That sentiment has been echoed earlier today as a separate report showed that German exports declined in March as foreign investors sought cheaper alternatives elsewhere. Overseas sales fell 1.4% from February, which was significantly higher than anticipated as the Euros dramatic appreciation against the Dollar this year continues to weigh on demand. Export growth has been the catalyst of economic growth in Europe's largest economy, which has expanded at the fastest pace in over seven years. Nevertheless, the European Central Bank are still widely expected to increase borrowing costs in June although policy makers may leave interest rates on hold at 3.75% tomorrow.
The Pound managed to make modest gains against the Euro yesterday but continued to downward slide versus the Dollar as we build up to the Bank of England interest rate announcement tomorrow. Over the past month, a host of economic reports have given the monetary policy committee scope to lift rates beyond the current 5.25% with some investors speculating that a 50 basis point hike may be necessary with inflation at the highest level in a decade. The market has already factored in a quarter of a point rise in UK interest rates in May but with service sector growth at the slowest pace in seven months, a more aggressive move from the Bank of England looks increasingly unlikely. Therefore, the Pound may come under some pressure if the MPC decide to lift rates by just 25 basis points and sellers of Sterling would be well placed to work a stop order to protect against an adverse move in the market. Nevertheless, the Pound has received a timely boost this morning as a report from the Nationwide Building Society showed that UK consumer confidence rose to the highest level in six months in April. The report illustrates that three interest rate increases since last August has failed to curb consumer optimism over employment and wage growth.
The Pound continues to decline against the Dollar as growth in the UK service sector slows in April
The recent positive sentiment surrounding the Dollar continued yesterday as the U.S currency rose 0.2% against the Euro and also made significant gains versus the Pound following yet another round of surprisingly positive economic reports. U.S service sector growth accelerated by more than anticipated in April and following the unexpected rise in manufacturing output and factory goods orders, the economy seems to be gathering momentum after slowing in the first quarter. The ISM index of non-manufacturing companies advanced to a reading of 56.0 last month from 52.4 in March with a figure above 50 indicating growth in services, which accounts for 90% of the economy. Elsewhere, the Dollar shrugged off an earlier report to rise to the highest level in nearly a month versus the Pound as U.S productivity rose to an annual rate of 1.7% in the preliminary estimate for the first quarter. The quarterly survey rose 2.1% in the final three months of 2006 while unit labour costs rose just 0.6%, providing an indication that inflation will continue to moderate this year. In terms of economic data, the resurgence of the Dollar may be severely tested this afternoon as the focus will fall heavily on the monthly U.S job report. Following the downward swing in the ADP employment report earlier this week, it is widely anticipated that the economy added fewer jobs to payrolls in the past month with the unemployment rate rising to 4.5%.
The Euro remained largely unchanged against the Pound yesterday but fell for a second consecutive day versus the Dollar following a sparse supply of economic data released in the Euro-zone. However, the single currency may receive a timely boost this morning as the Purchasing Manager's index into European service industries is expected to increase modestly in April. Recent reports have suggested that consumer and business confidence have been increasing at a robust level over the past month and the gauge of service sector growth this morning may emphasise the need for higher interest rates. In addition, a separate report may show that European retail sales increased dramatically in March, rising 0.6% from the previous month to an annual rate of 2.4%. The European Central Bank have given a strong indication that a rate hike is scheduled for June and recent hawkish comments from a number of governing council members has reinforced the chances of further monetary tightening beyond June.
The Pound continued to decline against the U.S Dollar yesterday and by the close of trading last night the market was trading close to the trend support at 1.9875 as the UK currency struggles following another round of poor economic reports. The CIPS survey into UK service industries showed that growth in sector expanded at the slowest pace in seven months in April. The reports provides the latest indication higher interest rates are beginning to cool economic growth after UK mortgage approvals dropped to the lowest level in almost a year earlier this week. Services accounts for three-quarters of gross domestic product and have propelled the UK economy to the fastest pace of expansion in over two-years. Consumer price inflation is currently running at the fastest pace in a decade and that is expected to prompt the Bank of England to increase the interest rates to 5.50% next week. However, recent economic reports have all but diminished the prospect of a 50 basis point rise and that may weigh on Sterling in the build up to the announcement.
The Pound declines after UK mortgage approvals drops by the most in a year
The Dollar made widespread gains against the majors yesterday, rising 0.5% versus the Euro and a further 0.4% against the Pound following another band of positive U.S economic data. Following the unexpected rise in manufacturing activity on Tuesday, the U.S currency managed to gain momentum as a separate report called in to question the idea of a gradual slowdown in economic growth and the prospect of an interest rate cut later in the year. Durable goods orders rose above initial forecasts in March, which correlates with the surprising rise in manufacturing output and reinforced signs that business investment would recover going into the second quarter. Factory orders climbed 3.1%, the highest monthly gain in a year and excluding the volatile transportation gauge, bookings rose 1.9% following a no change in February. Elsewhere, the Dollar continued to gather pace to close last night well under the $2.00 barrier despite a seemingly negative outlook on the U.S labour market. The ADP employment report showed that the economy added the fewest jobs in almost four years last month. The report should provide an insight into the monthly U.S job report this Friday and it is widely anticipated that the unemployment rate jumped to 4.5% in April while average hourly earnings remained unchanged. The Dollar may make further gains against the majors this afternoon as U.S worker productivity probably grew at a slower pace in the first quarter although unit labour costs may have increased.
The Euro managed to make further gains against the Pound yesterday but came under pressure versus a resurgent U.S Dollar, triggered by a series of disappointing economic reports. Earlier this week, German retail sales fell dramatically and provided an insight in to consumer confidence while separate reports yesterday showed that German unemployment and Euro-zone manufacturing fell short of expectations. Nevertheless, the German jobless rate did hold steady at 9.2% in April, which equals the lowest level of unemployment in nearly six years with the number of people out of work falling by 9,000. That figure was significantly lower than expected as economists had forecast a drop towards 40,000 claims last month. Elsewhere, the Purchasing Manager's index on European manufacturing growth was also under initial expectations and the data yesterday provides an indication that a strong Euro combined with the VAT increase at the start of the year is beginning to have a negative impact on the economy. There is a sparse supply of economic data in the Euro-zone this morning but the Euro may continue to make gains against the Pound after ECB governing council member Liebscher reiterates that the Central bank must remain vigilant on inflation.
Following the unexpected drop in UK manufacturing activity earlier this week, the Pound has fallen considerably against the majors and that trend continued yesterday following another round of negative economic reports. UK mortgage approvals declined to the lowest level in nearly a year in March and provides the first indication that higher interest rates are beginning to slow the property market. Despite house prices rising significantly in the preliminary estimates for the first quarter, the upward swing is likely to lose momentum this year with lenders approving the least amount of loans since April 2006. In addition, the Confederation of British industry has recently reported that the UK retail price index is at the strongest level in two years but if house prices start to retreat, consumers are unlikely to maintain the pace of spending. As a result, the Pound came under increased pressure yesterday as we look to retest the trend support at 1.9875 versus the Dollar with the data reducing the prospect of a 50 basis point hike next week.
The Dollar rebounds against the Pound as U.S manufacturing unexpectedly advanced in April
The Pound managed to increase dramatically against the U.S Dollar yesterday, rising close to the highest level in 26-years to test the resistance level at 2.0070 while also making significant strides forward versus the Euro. The positive sentiment surrounding the UK currency came in spite of a weaker-than-expected report on the manufacturing sector, which grew at the slowest pace in three months in April. The CIPS survey fell to a reading of 53.9 last month and although a figure above 50 indicates expansion, the report provides a further indication that factory production is struggling as the Pound continues to appreciate in value. The Pound has increased 10% against the Dollar in the past year alone as higher inflationary pressures caused the Bank of England to increase borrowing costs to a five-year high at 5.25%. Elsewhere, the Pound continued to rise for a third consecutive day against the Dollar and also rose 0.4% versus the Euro as a separate report from the Confederation of British Industry further enhanced the chances of an interest rate hike next week. Consumer spending has been a primary driver of economic growth this year and the report yesterday showed that retail growth had reached the highest level in two years last month. In terms of economic data, the Pound may come under some pressure this morning as a report from the Bank of England could show that UK mortgage approvals declined in March as the prospect of higher borrowing costs discourage first-time buyers.
The May Day holiday proved negative for the Euro yesterday as the single currency dropped significantly against both the Euro and the Dollar due to the distinct lack of economic data released in the Euro-zone. That trend should alter this morning as the European Purchasing Manager's index is expected to show that manufacturing edged higher in April. The headline measure of the report may suggest that industrial activity is slowing as the Euro continues to gather momentum, increasing to a record high against the U.S Dollar over the past week. Many politicians and governing council members have expressed concerns that economic growth will begin to slow as the slowdown in the U.S hampers demand for European exports. However, recent reports have suggested that the economy is weathering a strong Euro and a separate report this morning may show that unemployment fell to a record low 7.2% in March from 7.3% the previous month.
Initially, the Dollar came under severe pressure against the Pound yesterday but managed to close just under the $2.00 barrier as the ISM index showed that U.S manufacturing unexpectedly advanced in April. The slump in factory production and output has been a real drag on U.S economic expansion this year but the index increased to a reading of 54.7 last month, which represents the biggest rise since May 2006. Companies have been reducing inventories over the past two quarters but the report yesterday may signal an imminent rise in production as the dramatic fall in value of the Dollar makes U.S exports look far more attractive, thusly reducing the trade deficit. Elsewhere, the Dollar remained largely unchanged after a separate report showed than an index of pending home sales in the U.S unexpectedly fell to the lowest level in four-years in March. The dramatic and sustained slump in the real estate market is showing few signs of peaking and the report yesterday further illustrated that the wave of subprime mortgage defaults is swelling the market with unsold homes. Nevertheless, the Dollar managed to consolidate on the gains made against the Pound in the aftermath of the manufacturing report and may make further gains today as an index of factory goods orders is expected to rise 2.0% in March.
The Dollar declines as a gauge of U.S inflation unexpectedly moderates in April
The Dollar came under renewed pressure against the majors yesterday, dropping 0.2% versus the Euro and the Pound as the U.S currency struggled to consolidate on the earlier gains following a band of weak economic reports. Firstly, the PCE price index, which represents the Federal Reserve's preferred measure of U.S inflation, came in lower than anticipated in March while a survey of Business activity in the Chicago region unexpectedly slowed. U.S personal spending also rose less than initial forecasts in March, which provides an indication that higher fuel prices and the sustained slump in housing will continue to weigh heavily on economic expansion. Consumer spending, which accounts for two thirds of the economy, only rose 0.3% from a month earlier, falling by the most since September 2005 while a gauge of inflation remained unchanged. The report provided further evidence that the U.S economy has become overly reliant on the consumer and increased the prospect of a cut in interest rates over the coming months. Elsewhere, the Dollar continued to decline, dropping close to the record low against the Euro and also trading back above the $2.00 level versus the Pound as a measure of business activity fell dramatically from the highest level in two years. The report should provide some insight into the ISM manufacturing numbers this afternoon as factory production is likely to remain unchanged in April with a figure above 50 indicating expansion.
The Euro managed to make modest gains against the Pound yesterday and also increased to a near-record level versus the Dollar as the EC sentiment index pointed to further growth in consumer and business confidence. Recent economic reports have suggested that the European economy is gathering momentum after expanding at the fastest pace in seven years in 2006 with confidence staying close to a six year high in April. The index also provided a further indication that business sentiment continues to remain robust, withstanding higher oil prices and rising interest rates as well as the slowdown in the U.S, which is likely to hamper Euro-zone export growth. There has been widespread concerns that the Euros dramatic appreciation against the Dollar would begin to weigh heavily on economic growth despite record low unemployment. However, the pace of expansion is likely to convince policy makers to raise interest rates for the eighth time since late 2005 with the next likely increase scheduled for June. The May Day holiday today may prevent the Euro from consolidating on the recent gains made against the Pound.
The Pound managed to make rapid gains against the Dollar yesterday as an early report showed that UK house prices increased by the most in nearly four years in April despite interest rates currently standing at a five-year high. The Hometrack survey conveyed a clear message that growth in the property market will continue to gather momentum with the average cost of a home rising 6.8% year-on-year in April. The sustained and overwhelming increase in house prices will bolster the chances of further monetary tightening in the UK as the Bank of England look to raise interest rates a further 25 basis points next week. That sentiment has propelled the Pound to highest level against the Dollar since June 1981 although other reports have pointed to a gradual cooling of the UK housing market. In terms of economic data, the Pound may stay relatively strong this morning as a report on the UK manufacturing sector is expected to show that growth in factory production remained virtually unchanged in April.
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