The Pound continues to decline against the majoirty of the majors following comments from BoE policy maker David Blanchflower
Despite the fundamental lack of UK economic data released yesterday, the Pound succumbed to comments from Bank of England policy maker, David Blanchflower, who was the sole voice for a cut in interest rates in July, said that the economic outlook has worsened significantly over the past month.
In an interview with BBC Radio, Blanchflower told journalists that the recent decline in retail sales and contraction in other areas of the economy meant that policy makers needed to “reconsider and take another vote next week.”
The recent spate of negative economic reports indicates that growth in services, manufacturing and housing have all slipped into negative territory as the UK economy edges closer towards the first recession since the early 1990s.
An estimate of gross domestic product showed that economic growth matched the slowest pace since 2001 earlier this week while policy makers are concerned that rising unemployment will induce a period of stagflation as prices accelerate at the fastest pace in a decade.
The Bank of England have kept interest rates unchanged at 5.0% as record high food and energy costs saw prices reach 3.8% in June and that prompted MPC member, Timothy Beasley, to voted for an increase in rates as he publicly stated that inflation is primary threat to economic growth.
The Pound declined against the Dollar yesterday while the UK currency again took advantage of broad Euro weakness to finish the session back above the 1.2700 level last night as the focus switches to the Nationwide house price data tomorrow.
The report is expected to confirm that prices slipped a further 1.2% on the month while falling 7.2% from this stage in 2007 as tighter lending conditions means that consumers are unable to borrow while rising mortgage rate are discouraging first time buyers.
The subdued sentiment surrounding the Euro and the outlook for the European economy continued yesterday as the EC sentiment index showed that industrial and consumer confidence dropped by the most since the September 11th terrorist attacks in 2001.
The Euro’s overwhelming advance against the Dollar this year has weighed on export growth while the impact of the credit crisis combined with record high commodity prices has hurt consumer confidence and seen inflation rise at the fastest pace in 16-years.
The index of sentiment slumped to a reading of 89.5 in July, which vastly exceeded initial forecasts and the tone of the report has limited the ECB’s scope to raise interest rates beyond the current 4.5% as growth in the economy slides towards contraction.
Nevertheless, the European Central Bank has maintained a staunchly hawkish resolve on monetary policy and the Euro may find some support this morning as the harmonised index of consumer prices is expected to confirm that inflation edged above preliminary forecasts this month.
The Dollar consolidated just under the one month high against the Euro yesterday while the U.S currency also registered gains versus the Pound despite oil prices rising more than $4 a barrel in New York after the U.S Energy Department reported the first decline in inventories for five weeks.
Elsewhere, the Dollar stood firm and found some support after the ADP employment report posted an unexpected increase in U.S payrolls this month following a revised drop of 77,000 in June, which was smaller than previously estimated.
However, the ADP report cannot be relied upon as a guide to current labour market conditions as the last 6 reports have all shown an increase in job growth while the government’s nonfarm estimates have pointed to contraction in the U.S workforce.
Data Released 31st July
U.K 07:00 Nationwide House Prices (July)
EU 10:00 Flash HICP (Harmonised Index of Consumer Prices) (July)
The Pound declines against the majors after as UK consumer spending slumps to the lowest level in 25-years
The Pound extended its decline against the majority of the major currencies after a report from the Confederation of British Industry showed that an index of UK retail sales slumped to the lowest level in 25-years as tighter lending conditions restricted borrowing and curtailed spending.
The tone of the report mirrored last week’s sales figures for June and is just the latest indication that the economy is teetering on the brink of recession.
The Pound subsequently lost ground against 15 out of the 16 most actively traded currencies as a separate report from the Bank of England showed that mortgage approvals sank to the weakest level since records began in 1999.
In the aftermath of the report, traders pared bets that the BoE will cut interest rates for the third time this year and risk letting inflation spiral well above 4.0% over the coming months. The Pound also declined against the Dollar, revisiting the ‘Fibonacci’ support level at 1.9850, before breaking through by the close of trading last night after oil prices slid a further $3 in New York.
The price of crude oil fell to the lowest level in 12 weeks, dropping 17% since hitting a record high earlier this month, amid speculation that demand is weakening.
The geo-political issues in Iran and Nigeria are threatening supply but oil prices declined as the U.S Dollar rallied to a one month high versus the Euro and curbed the appeal of commodities as a hedge against inflation.
The Euro plummeted against the Dollar yesterday and also breached back above 1.2700 by the close last night amid further suggestions that the recent negative tone of economic data means that the European economy is hurtling towards contraction.
The single currency failed to take advantage of broad Sterling weakness despite reports in Germany that the annual rate of inflation held at the highest level in 12-years this month after the surging cost of raw materials forced manufacturers to pass on higher costs to the consumer. Prices rose 3.4% from this stage in 2007 and faster inflation may accelerate the decline in growth as consumer and business confidence fall to the lowest levels on record.
Nevertheless, the European Central Bank has maintained a staunchly hawkish stance on monetary policy and despite the recent evidence, policy makers still believe that there is room for a further increase in borrowing costs.
The Euro may continue to decline against the majors as the as the EC economic sentiment index is expected to confirm that industrial and consumer growth slipped further into negative territory this month.
The Dollar advanced to the highest level in a month versus the Euro while the U.S currency also made significant gains versus the Pound following a surprisingly positive report on consumer confidence, which provided some optimism that the economy will pull back from the brink of recession.
Elsewhere, the Dollar was largely unaffected despite reports of a further slump in the U.S property market as the S&P/Case-Shiller index showed that house prices fell at a faster pace than anticipated in May.
A separate report showed that the Conference Board’s index of consumer confidence unexpectedly rose higher in June and mirrored the recent report on U.S retail sales, which conveyed a surprising resilient in spending.
The Dollar also found some support as oil prices fell under $123 a barrel last night while the U.S currency rose earlier in the session as reports that Merrill Lynch & Co plans to sell $8.5 billion of stock and bonds raised speculation that the economy is through the worst of the credit crisis.
In terms of economic data, the Dollar’s resolve may tested this afternoon as the ADP employment index is expected to show a further softening in the U.S labour market and provide an indication of Nonfarm Payrolls on Friday.
The Dollar extends its decline against the majors amid speculation that U.S financial company losses will widen and prevent the Fed from raising rates
The Pound initially declined against the Euro yesterday, dropping to the lowest level in a week, while the UK currency also revisited the trend support at 1.9850 versus the Dollar after a report from Hometrack Ltd showed that house prices fell in July by the most in at least seven years.
The average cost of a home in Britain plummeted 4.4% from this stage in 2007 to £168,500 as the index recorded the biggest annual drop in prices since records began in 2001.
The accompanying statement from the London-based research company suggested that house prices will remain suppressed over the coming months with prices likely to fall further in the Autumn.
The fallout from the credit crisis has forced banks and lenders to limit their best offers while also increasing mortgage rates well in excess of the base rate.
Rising inflationary pressures have limited the Bank of England’s scope to lower interest rates and with consumer prices expected to breach 4% in July, some policy makers may be leaning towards a tightening bias even at the risk of a recession.
Nevertheless, the Pound bounced back against the Dollar later in the session after crude oil prices increased following reports that Shell reduced Nigerian production because of militant attacks on pipelines.
In terms of economic data, the Pound will be susceptible to reports that UK mortgage approvals dropped to 37,000 in June, from 42,000 the previous month to signal further weakness in the housing market.
The Euro took advantage of broad Dollar weakness yesterday but failed to hold on to earlier gains versus the Pound after a gauge of German consumer sentiment showed that confidence in Europe’s largest economy dropped to lowest level in over five years.
Record high energy costs have forced manufacturers to pass on higher prices to the consumer as inflation accelerated to 3.4% in Germany last month and eroded the outlook for economic growth.
The recent Ifo sentiment index showed that business confidence in the region had slumped by the most since the September 11th terrorist attacks while the ZEW survey for investor confidence dropped to the lowest level on record.
The report yesterday is just the latest indication that growth in the European economy is slowing and the Euro may struggle to gather momentum this week amid the release of the EC business and consumer confidence surveys.
The Dollar again failed to break the major support at 1.9850 versus the Pound and also suffered a strong intraday slide versus the Euro amid concerns that U.S financial company losses will widen further and reduce the probability of an increase in U.S borrowing costs.
The Dollar declined for a second day against the majority of the major currencies after Fed policy maker, Gary Stern, told the Financial Times that the credit crunch will get worse, slamming suggestions that the economy will bounce back towards the end of 2008.
Elsewhere, the Dollar failed to find any support amid reports that the Nigerian militant group MEND (Movement for the Emancipation of Niger Delta) claimed responsibility for an attack on Nembe Creek trunk pipeline and increased concerns over production in the region.
Elsewhere, the Iranian President, Mahmoud Ahmadinejad, was reported as saying that the Middle East’s second-largest oil producer has 6,000 uranium-enriching centrifuges.
The simmering tensions between Iran and Israel helped to lead oil prices to a record high earlier this month and concerns over supply saw prices increase 1.2% in New York.
The Dollar will again be susceptible to volatility in stock and commodity markets today and the U.S currency may also come under further pressure as an index of house prices is forecast to fall 16% in May.
Data Released 29th July U.K 09:30 Consumer Credit (June) U.K 09:30 Mortgage Applications (June) U.K 11:00 CBI Distributive Trades Survey (July)
The Dollar rallies against the majors after oil prices consolidate under $125 a barrel
Following on from last week, the volatility surrounding the Pound is likely to continue as the UK currency initially strengthened against the majority of the 16 most actively traded currencies despite reports that the UK economy matched the slowest pace of growth since 2001.
According to a report from the Office of National Statistics, gross domestic product expanded just 0.2% in the revised figures for the second quarter with the economy growing just 1.6% from this stage in 2007.
A number of key industries have reported a contraction in growth with manufacturing and services both slipping into negative territory while the impact of the credit crunch and a larger drop in UK consumer spending have increased the probability of a recession.
The outlook for the economy is at its weakest since the early 1990s and is eroding support for Gordon Brown’s Labour government, which suffered a hammering blow in the Glasgow by elections last week.
Tighter lending conditions is weighing on consumer’s ability to spend while falling house prices have suffocated growth but the Bank of England are reluctant to lower interest rates at inflation accelerates at the fastest pace in a decade.
Nevertheless, the Pound rallied in the aftermath of the GDP numbers as the 0.2% increase matched the result from the previous quarter and showed that at least the economy hadn’t declined any further.
However, the UK currency erased any earlier gains as broad Dollar strength brought the market back towards 1.9900 by the close of trading on Friday and in a relatively quiet week in terms of market data, the Pound may struggle to bounce back against the majors amid the release of the Nationwide and Hometrack house price surveys.
The Euro has remained in a tight trading range against the Pound and despite last week’s move towards the resistance at 1.2760, the market came back to find support at 1.2650 amid hawkish commentary from a number of ECB officials.
Despite concerns that European economy slipped in negative growth in the second quarter, the Central Bank has been determined to bring inflation back down from the highest level in 16-years.
The Euro also strengthened marginally against the Dollar as German import prices rose 1.5% in June while governing council member, Klaus Liebscher, said that the Central Bank has the room to raise interest rates again and prevent second round effects.
The renewed appetite in Dollar sentiment has coincided with the remarkable fall in oil prices as crude oil consolidated under $125 a barrel despite concerns over supply in Iran and the threat of militant attacks in Nigeria.
Elsewhere, the U.S currency also found some support as index of consumer sentiment showed that confidence unexpectedly increased in July, rising from the lowest level since 1980 as tax rebates and a rally in the stock market improved optimism.
The University of Michigan final index of consumer sentiment increased to a reading of 61.2 in July and although the survey will come as a blip in an otherwise weak strain of economic data, the report does provide some hope that the economy can bounce back in the second half of the year.
The Pound rallies against the majors after BoE policy maker, Timothy Besley, voted for a rise in UK interest rates
The Pound recorded widespread gains against the majors yesterday, rising to a seven week high versus the Euro and briefly revisiting the $2.00 level following the release of the minutes from the Bank of England’s last policy meeting.
The voting pattern of the nine strong committee showed that at least one member of the MPC is leaning towards an increase in UK borrowing costs as some members believe that inflation becomes the primary threat to the economy.
Consumer prices have risen to the highest level in 16-years as the escalating tensions in the Middle East pushed the price of crude oil to a record high of $147.29 on July 11th. UK manufacturers have been forced to pay record high prices for raw materials and have little choice but to pass that cost on to the consumer, stoking the already persistent inflationary pressures.
Nevertheless, many areas of the economy are reporting slower growth as the impact from the U.S subrprime mortgage crisis spreads through services, manufacturing and housing. Tighter lending conditions means that consumers are unable to spend and support growth while a declining labour market may see the economy slip into recession later this year.
The Pound also enjoyed a strong intraday rally against the Australian and New Zealand Dollar as MPC member, Timothy Besley, elected to raise interest rates in July and said that accelerating inflation is putting the Bank’s credibility at risk.
The Bank of England’s handling over the Northern Rock affair and the credit crisis in general has already reduced confidence in the Central Bank and with prices forecast to hit 4.5% later this year, policy makers may have little choice but to raise interest rates.
The surprisingly hawkish tone of the minutes saw the Pound rally against the majority of the 16 most actively traded currencies but the short-term momentum in Sterling is unlikely to last over the coming weeks.
The majority of the committee voted to keep rates at 5.0% this month aside from David Blanchflower, who again highlighted the necessity to reduce borrowing costs and the Pound may be tested this morning as a report from the Office of National Statistics probably showed that retail sales fell 2.5% in June.
The Euro traded close to the lowest level in two weeks versus the Dollar yesterday as the sustained decline in oil prices continued and the drop in Euro-zone industrial orders emphasised the deterioration in the outlook for the economy.
Orders plummeted three times initial estimates in the revised numbers for May as a stronger currency and a slump in domestic demand weighs heavily on business confidence.
Elsewhere, retail sales in France and Italy were also below expectations and therefore the tone of the German Ifo sentiment index is expected to point to further downside risks to growth.
Although the Dollar initially declined against the Pound following the release of the BoE minutes, the U.S currency consolidated back below $2.00 by the close of trading last night and also registered sharp gains versus the majority of the major currencies.
The revival in Dollar sentiment can be attributed to speculation that the U.S government rescue plan for Fannie Mae and Freddie moved a step closer to congressional passage while oil prices continued to tumble through $125 a barrel.
The renewed sense of stability surrounding the financial industry combined with speculation that oil prices have peaked sparked rumours that the Federal Reserve will raise interest rates by September.
The Pound declines against the Dollar as crude oil prices fall to the lowest level in six weeks
The Pound took advantage of broad Euro weakness yesterday to breach back above the 1.2600 barrier by the close of trading last night but the UK currency fell back towards the 1.9900 level versus the Dollar amid a string of economic and geo-political factors.
Crude oil prices fell more than $3 a barrel in New York and to the lowest in six weeks amid forecasts that a tropical storm headed for the Gulf of Mexico will miss oil installations.
The price of oil fell below $126 a barrel after reaching a record high of $147.27 just 11 days ago and the 15% drop in prices in such a short period of time may indicate that the upward trend in prices has peaked.
Elsewhere, the Pound failed to find any support as a distinct lack of UK economic indicators meant that the market’s attention was briefly fixed on comments from Alistair Darling.
In a televised interview, the Chancellor said that the fallout from a global credit crunch is having a “far more profound effect” on the economy than had been previously anticipated. Darling’s tenure as Finance Minister has coincided with the worst slump in housing and the steepest rise in living costs in a decade.
The tone of his statement indicates that UK policy makers are becoming increasingly pessimistic about the outlook for growth and the focus this morning will fall on the release of the minutes from the Bank of England’s last policy meeting.
At least one member of the MPC would have elected to lower interest rates but the statement from Andrew Sentence last week showed that rising inflation may warrant an increase in borrowing costs.
The voting pattern of the committee will be of particular significance to economists and if one more member joined Blanchflower in electing for a cut in UK interest rates then the Pound may decline further against the Dollar after closing under the support at 1.9944 last night.
The Dollar rallied against the majors yesterday, rising by the most in two weeks versus the Euro after the U.S Treasury Secretary again voiced his support for the greenback in a speech in New York.
Paulson expressed confidence that Congress will agree to proposals designed to “boost confidence” in Fannie Mae and Freddie Mac, two of the largest sources of U.S mortgage financing.
The Dollar has fallen to a record low against the Euro this month and breached the $2.00 level versus the Pound on concerns that two of America’s biggest financial institutions, which guarantee almost of the $12 trillion in U.S home loans outstanding, would fail to survive the worst housing slump in nearly 20-years.
Nevertheless, Paulson remains defiant that the U.S government will pass the bill and he reiterated the importance of a strong dollar, which also found support as the Philadelphia Fed President, Charles Plosser, said that the Reserve Bank should raise interest rates to combat inflation.
The Dollar subsequently rallied 0.9% versus the Euro and also enjoyed a strong intraday move against the Pound after oil prices retreated to a six-year low and the U.S currency may extend its advance today, particularly if commodities continue to tumble.
The Pound fell against the Euro and the Dollar after UK house prices fell to the lowest level since the survey began in 2002
The Pound fell to a low of 1.9909 against the Dollar yesterday, before bouncing back later in the session, after an industry report from Rightmove Plc showed that UK house prices dropped by the most since the survey began in 2002.
The average price for a home in Britain fell an annual 2% this month to £235,219 as prices fell a further 1.8% on the month and tighter lending conditions led to an increased number of unsold homes swamping the market.
A separate report also indicated that house prices will decline 10% in 2008 and a further 6% next year as the looming threat of a recession means that Bank’s will impose even tighter lending restrictions while consumer prices are likely to breach 4.0% amid record high fuel costs.
The Pound also slumped against the Euro for a second day in succession as Bank of England policy maker David Blanchflower, who has previously voted for a more aggressive easing of UK interest rates, said that the Bank has little option but to reduce borrowing costs.
In an interview in the Guardian newspaper, Blanchflower, acknowledged the recent spate of negative reports surrounding the UK economy and said that “we are going into a recession and we are probably in one right now”.
It is not at all surprising that Blanchflower advocates for a reduction in rates and the minutes of the Bank’s last policy meeting will probably reflect his dovish outlook for the economy. The views of David Blanchflower contrast will a recent statement by another member of the Central Bank’s monetary policy committee, Andrew Sentence, who said that rising inflation was the primary threat to the economy.
The Dollar fell against the Euro yesterday and also failed to hold to earlier gains made against the Pound as index of leading economic indicators forecast that the U.S economy will continue to struggle over the next 3-6 months.
The Conference Board’s index fell a further 0.1% in June after a 0.2% drop the previous month as rising unemployment claims and U.S stock market declines erode confidence while falling equity prices means that the economy still stands on the brink of a recession.
Elsewhere, the Dollar also came under pressure after crude oil prices rose the lowest level in six weeks amid reports that a tropical storm threatened production in the Gulf of Mexico and Iran again resisted demands for a suspension in their nuclear research program.
The Pound declines against the majors after UK house prices drop by the most since 2002
Following on from last week, the Pound has been susceptible to the increased level of volatility in stock and commodity markets while the looming threat of a UK recession has caused some division with the Bank of England’s monetary policy committee.
The price of oil may have peaked above $147 a barrel as U.S inventories dramatically increased beyond initial forecasts in June but the subsequent impact on inflation will probably see consumer prices breach 4.0% over the coming month.
The rising threat of inflation is posing a problem for the BoE as policy makers are forced to weigh up the escalating risks to price stability against a slowdown in the UK economy.
The Pound rallied above $2.00 last week but failed to sustain that momentum as a 15% drop in oil prices helped boost Dollar sentiment while the focus should switch to UK fundamentals this week amid a packed calendar of market moving data.
The advanced estimate of gross domestic product in the second quarter is expected to show a further deterioration in UK economic growth. The report may show that the economy grew by just 0.2% in the three months to June while a separate report on retail sales is expected to confirm that consumer spending declined significantly in June, falling 2.5% after a surprising gain in May.
Nevertheless, the focus will inevitably fall on the release of the minutes from the Bank of England’s last policy meeting and although policy makers left rates unchanged, the voting pattern of the nine-member committee could lead to speculation of a rate change.
Despite suggestions that the Euro-zone economy contracted in the second quarter, the relentless threat of inflation continues to dominate the ECB’s monetary policy and that has continued to support the Euro as the single currency consolidates near the all time record high versus the Dollar.
A spate of recent negative economic reports has pointed to further downside risks to growth while manufacturers are struggling to cope with rising prices as business and consumer confidence dwindles while borrowing costs increase.
The ECB’s governing council members elected to lift interest rates by 25 basis points earlier this month in an attempt to rein inflation, which has remained at the highest level in 16-years and food and fuel prices rise to a record high.
The focus this week will fall on the IFO business sentiment index in Germany where confidence is expected to deteriorate in correlation with the ZEW survey of investor and analyst expectations released earlier this month.
A sharp drop in exports and production points to an overall slowdown in business activity but a separate government report is expected to show that producer price inflation in Europe’s largest economy increased at the fastest pace in 26-years last month.
The Dollar rebounded against most of the major currencies on Friday after falling to a fresh record low versus the Euro earlier in the week as the turmoil surrounding financial markets eased and crude oil retreated 15% in just 4-days.
The renewed appetite for the Dollar was also helped amid speculation that U.S investment banks will withstand the credit crisis while the Treasury Secretary, Henry Paulson, is confident that the government will pass proposals to shore up confidence in Fannie Mae and Freddie Mac.
Data Released 21st July
U.K 00:01 Rightmove House Prices (July) U.S 15:00 Leading Indicators (June)
The Pound struggles to consolidate above $2.00 as oil prices retreat and U.S stocks rebound
The Pound struggled to remain above the crucial $2.00 level for a second consecutive day against the Dollar while the UK currency also retreated back towards 1.2600 versus the Euro last night amid contradictory comments from the Bank of England.
Consumer prices rose above preliminary forecasts in June and to the highest level in over a decade but MPC member, Dale, said in an interview yesterday that a slowing economy would help rein in inflation.
In a separate statement, BoE policy maker Andrew Sentence said that he was “particularly struck” by the jump in prices and even considered voting for an increase in UK interest rates last month.
The nine member monetary policy committee face a difficult balancing act in the months ahead as record high food and fuel costs stoke price expectations while policy makers attempt to shield the economy from a recession.
The minutes from the Bank’s last policy meeting are released next week and although rates were left unchanged at 5.0% this month, the voting pattern of the committee will be of particular interest on the future outlook for policy.
The Euro remained largely unchanged against the majors yesterday as a hawkish rhetoric from the ECB President, Jean-Claude Trichet, prevented the single from succumbing to a recovery in Dollar sentiment.
The Chairman of the Central Bank maintained his hawkish stance on monetary policy despite the escalating fears of a worldwide recession and said that policy makers can’t afford to ignore the second round effects of higher inflation.
In short, Trichet acknowledges the risks to economic growth but strongly believes that maintaining the risks to price stability is a far more pressing concern and is determined to bring inflation back from the highest level in over 16-years.
The ECB elected to raise interest to 4.25% earlier this month and the tone of yesterday’s statement could mean that further increases are to come while the Euro may find further support this morning as German producer prices are expected to show that a measure of inflation accelerated to 6.5% year-on-year in June.
The renewed optimism surrounding the Dollar is hardly surprising given that oil prices have retreated close to $18 a barrel or 12% since Monday’s high of $147.67, helping lift U.S stocks which had previously plummeted towards a record low.
The escalating tensions in the Middle East raised concerns over supply and helped push energy prices to new record highs but a surprising increase in U.S inventories has prompted speculation that oil may have peaked.
Lower prices would enhance consumer sentiment and improve business confidence while also helping alleviate the already persistent inflationary concerns and investors are optimistic that prices have topped as the fall this week is in line with the degree of the prior corrections.
In terms of economic data, the Dollar remained little changed after U.S housing starts, building permits and weekly jobless claims were all better than expected by manufacturing the Philadelphia region failed to rebound in June.
The Pound falls against the Dollar after UK unemployment rises for a fifth straight month in June
The Pound failed to consolidate above the $2.00 barrier against the Dollar yesterday but the UK currency took advantage of broad Euro weakness to close above 1.2600 last night despite a sharp increase in UK unemployment.
Claims for jobless benefits climbed for a fifth straight month in June and by the most since the end of the last recession in 1992 as the slump in the economy forced homebuilders and Banks to cut jobs and stop hiring.
The number of Britons out of work and claiming unemployment benefits increased 15,500 from May, rising well above initial forecasts and a softening in the labour market may exacerbate the slowdown in the economy and lead to a contraction in growth.
The Pound declined against the Dollar in the aftermath of the report as the Bank of England fights to bring inflation back towards target but an interest rate increase at this stage would weigh on consumer sentiment and cripple the housing market.
The collapse of the U.S subprime mortgage market has cost financial institutions worldwide an estimated £208 billion in losses and writedowns, which has seen 94,000 job losses in the banking sector alone.
In addition, a recent report from two of the UK’s biggest homebuilders, Redrow Plc and Bovis Homes Group Plc, both said that they will slash their workforces by 40% with 4,000 jobs cuts since the start of July.
The Euro declined against both the Pound and the Dollar yesterday as the harmonised index of European consumer prices showed that inflation accelerated at the fastest pace in over 16-years in June and matched earlier estimates published on the 30th June.
The report from the European Union showed that the annual pace of inflation rose above 3.7% year-on-year last month led by a 19% surge in Transport fuels while the cost of heating oil increased 53% and had the biggest upward impact on inflation.
The European Central Bank raised interest rates by 25 basis points earlier this month and to the highest level in seven years at 4.25% as policy makers struggle to rein in consumer prices while the scope to continue monetary tightening may be limited as the economy stumbles towards contraction.
The Dollar has been susceptible to a number of economic and geopolitical issues in recent weeks and the U.S currency enjoyed a sharp intraday move against the Pound yesterday after U.S stocks rallied and oil prices tumbled.
Crude oil for delivery in August fell over $4 a barrel on the session after a report from the Energy Department showed that U.S inventories unexpectedly increased as supplies rose to 296.9 million barrels last week.
In terms of economic data, the Dollar also found some support after U.S consumer prices jumped 5% over the past year, the biggest increase since 1991, as record high food and fuel costs saw the cost of living rise 1.1% from May to record the second largest increase since 1982.
The report provides an indication of the problems facing the U.S economy but with inflation accelerating beyond initial forecasts, the Federal Reserve face a difficult balancing act in steering the economy away from a recession while keeping a lid on consumer prices.
Data Released 17th July
U.S 13:30 Initial Jobless Claims (w/e 12th July) U.S 13:30 Housing Starts (June) U.S 15:00 Philly Fed Business Index (July)
The Dollar declines against the majors following a further drop in the U.S stock market
Following on from last week, the Pound took advantage of broad Dollar weakness as the escalating tensions in the Middle East helped bring oil prices to the highest level on record while the U.S Stock market plunged after shares in Fannie Mae and Freddie Mac fell to the lowest level in over 17-years.
Oil prices rallied above $147 a barrel towards the end of the last week as reports that Iran continued to test fire long range missiles in the Persian Gulf was followed by news that Israeli war planes had been spotted flying over Iraq.
Iran holds the second biggest oil reserves and the tenuous relationship with Israel could see the price of crude oil climb towards $150 a barrel over the coming weeks while other reports indicated that the Nigerian militant group, MEND, will end its unilateral cease fire on July 12.
The group have been responsible for cutting over 20% of Nigeria’s oil production over the past two years by attacking pipelines and installations while the strike in Brazil could further hamper production.
Although the Pound strengthened against the Dollar, the gains were entirely due to Dollar weakness as the UK currency slumped versus the Euro as the problems surrounding Fannie Mae and Freddie Mac saw the FTSE 100 index plummet alongside the Dow Jones.
The UK economy faces the same problems as the that of the U.S and according to the latest housing data from Halifax, home values have fallen for a fourth straight month in June and to the lowest since the survey began.
Separate reports from Nationwide and Hometrack Ltd will be released later this week and are forecast to show a further decline in prices but the focus will surely fall on the latest round of inflation numbers, which are expected to confirm that consumer prices rose to 3.6% year-on-year last month.
The Bank of England have the unenviable task of balancing the risks of a recession against rising inflationary pressures but with prices expected to exceed 4% later this year, policy makers may have little choice but to raise interest rates later in the year.
The Euro rallied towards the 1.60 level versus the Dollar on Friday as the slump in U.S stocks led to fresh concerns that another financial crisis may be just around the corner while the single currency breached 1.2500 against the Pound and may be poised to make further gains.
Due to the fundamental lack of Euro-zone economic data released this week, the probability of the Euro rising to a record high against the Dollar will be dependent on oil prices and the market sentiment surrounding the U.S stock market after the Dow slumped by the most in two years.
The combination of soaring oil prices and the problems with the U.S stock market triggered sharp volatility in the equity and currency market as the Dow fell 200 points on Friday following a statement from the U.S Treasury Secretary, Henry Paulson.
His reluctance to announce a plan to bailout Fannie Mae and Freddie Mac disappointed the market and even Ben Bernnake’s offer to access the ‘discount window’ failed to stop the slide in share prices.
However, the government have previously intervened to prevent the collapse of Bear Sterns from crushing the market but if the Fed step in at this stage it would essentially double the public debt and continue to weigh on Dollar sentiment.
The Pound declines as UK stocks slump to the lowest level since 2005 after the BoE keep rates unchanged at 5.0%
The Pound declined against the majority of the major currencies yesterday as UK stocks slumped to the lowest level since 2005 and the Bank of England kept interest rates unchanged at 5.0% amid concerns that the economy is slipping into a recession.
Growth in manufacturing and services industries has contracted in the past month while UK home values have decreased 6.3% since the turn of the year as tighter lending conditions and rising mortgage rates weigh on confidence.
However, the monetary policy committee face a difficult balancing act over the coming months as policy makers are forced to weigh up the risks of a recession against rising inflationary pressures as consumer prices move above the government’s 3.0% limit.
The outcome of the announcement was widely anticipated and a ‘no change’ in rates means no accompanying statement and the market will have to wait until the minutes of the meeting released later this month for an indication on future policy.
The Bank dismissed calls from unions and executives to lower interest rates for the fourth time since December while a separate report from one of the largest UK homebuilders showed that house prices dropped by the most since 2003 last month.
Contraction in services industries and dwindling consumer sentiment has seen companies shed jobs in recent months and a declining labour market will drag the economy into a recession as the BoE Governor, Mervyn King, warned that consumers should brace themselves for a squeeze on living standards.
The Pound remained largely unchanged against the Euro in the aftermath of the announcement as the UK currency fell to a low of 1.9715 versus the Dollar as UK stocks plunged on concerns that an economic slump will derail consumer spending.
The Euro continued to take advantage of broad Dollar weakness yesterday as the focus again switched to commodity prices with crude oil rising more than $5 on the session after Iran tested more long range missiles in the Persian Gulf.
The escalating tension between Israel and Iran took a dramatic turn earlier this week when the Iranians made a very public showing of a test missile launch and increased concerns that a conflict would cut supply.
The Secretary General of OPEC, Abdalla El-Badri, spoke at a press conference in Vienna yesterday and acknowledged the severity of a conflict, saying that if something were to happen, “it is impossible to replace the production of Iran”.
Iran holds the second biggest oil reserves and the tenuous relationship with Israel saw crude oil for delivery in August rally back above $141 a barrel while other reports indicated that the Nigerian militant group, MEND, will end its unilateral cease fire on July 12.
The group have been responsible for cutting over 20% of Nigeria’s oil production over the past two years by attacking pipelines and the end of the cease fire combined with the missile testing in the Persian Gulf could see prices continue to rise.
The correlation between rising oil and a falling Dollar has become increasingly apparent over the past few months and the U.S currency may continue to struggle this afternoon after the Treasury Secretary, Henry Paulson, said in a congressional testimony that markets will take longer to stabilize.
The Pound took advantage of broad Dollar weakness yesterday as Iran test fired longe range missiles capabale of reaching Israel
The Pound took advantage of broad Dollar weakness yesterday while the UK currency also registered modest gains versus the Euro after commodity prices rallied amid reports that Iran test-fired a long-range missile capable of reaching Israel and the U.S base in Turkey.
The very public showing of the launch demonstrated Iran’s power while concerns over their nuclear capabilities and enrichment program has caused further tension in the Middle East and helped drive the price of oil to a record $145 a barrel this month.
The Pound had declined to a low of 1.9670 versus the Dollar after a statement from OPEC indicated that inflated oil prices were a were a result of exchange fluctuations rather than concerns over supply.
As a result, Crude oil slipped $9 from last week but the decline was halted by those pictures from Iran yesterday as U.S and Israeli officials condemned the move.
The Pound edged above 1.9800 at the close of trading last night despite earlier reports that UK mortgage rates surged to the highest level in over eight years.
The rate on home loans fixed for two years rose to 6.63% in June and to the highest since February 2000 while a separate report from the Nationwide Building Society showed that an index of consumer sentiment dropped as the worst housing slump in 30-years weighed on confidence.
The data released yesterday is just the latest indication of the deteriorating outlook for the UK economy but with the focus firmly fixed on commodity prices and the escalating tensions in the Middle East, the Pound may again take advantage and attempt a move towards the resistance at 1.9848 versus the Dollar.
The Bank of England interest rate announcement at midday will attract some attention but concerns over a recession will probably convince policy makers to leave rates on hold at 5.0% and a ‘no change’ means no accompanying statement and therefore little activity in the market.
The Euro strengthened against the Dollar yesterday and single currency make continue to gains despite a plethora of weaker economic data and moderate comments from the President of the ECB, Jean-Claude Trichet.
An EU report showed that the European economy grew by less than previous estimates in the first quarter, while trade data in Germany and France signalled that the slowdown in growth is gathering momentum.
The revised estimate of gross domestic product expanded 0.7% from the last three months of 2007 while the rising cost of materials pushed up import costs.
Manufacturing, service sector growth and consumer spending have all shown signs of slowing in recent months while a strong Euro has seen German exports fall by the most in nearly four years.
The escalating tensions between the U.S and Iran weighed on Dollar sentiment but in a week devoid of any market moving data, the focus will inevitably switch to the stock market, which has fallen 20% since the October highs and resumed its sell-off yesterday.
The Pound continued to decline against the Dollar yesterday amid fears that the economy is edging closer towards a recession
The Pound fell against the Dollar for the fifth consecutive trading session yesterday after a statement from the British Chamber of Commerce said that there were “serious risks” of the UK economy slipping into a recession.
Elsewhere, the Pound remained in a tight trading range against the Euro while also registering losses against the majority of the majors after a report from Britain’s second largest homebuilder showed that shrinking consumer confidence and tighter lending conditions will see a further reduction in “sales activity”.
A separate report from the Department for Communities and Local Government showed that UK house prices rose at the slowest pace in over two years in May. Home values increased just 3.7% from this stage in 2007, representing the smallest yearly increase since March 2006, while mortgage loans fell 44% over the same period.
The recent spate of negative economic fundamentals have conspired to drive the Pound lower against the majors as the UK currency fell a further 0.2% versus the Dollar.
The correlation between falling oil prices and the renewed appetite for the Dollar is becoming increasingly apparent and the Euro came under further selling pressure yesterday following an unexpected statement from ECB member ,Tumpel-Gugerll, who said that the entire governing council shared Trichet’s neutral stance on monetary policy.
The tone of the statement suggests that nobody within the ECB is committed to another increase in European interest rates, particularly considering how much oil prices have dropped in the past week.
By the close of trading last night, crude oil prices had retreated back towards $136 a barrel, falling by the most in three months after the impact of the OPEC President’s comments on Tuesday reverberated through the market.
In addition, prices have dropped more than $9 since reaching a record high of $145.85 last week as signs of a global economic slowdown will prompt investors to sell commodities in favour of lower yielding assets.
The Euro remained virtually unchanged against the Pound yesterday while the single currency may struggle to make gains against the Dollar as the revised estimate of EU gross domestic product probably showed that the economy slowed in the first quarter.
The Dollar may continue to make gains against the majors after the Federal Chairman, Ben Bernanke, reassured the market that the Reserve Bank is prepared to act and may extend its emergency loan program for securities into 2009.
The Dollar had been under pressure at the start of the week amid concerns that Fannie Mae and Freddie Mac, two of America’s largest mortgage finance companies, may need to raise additional capital.
However, the message from Bernanke yesterday combined with falling oil prices erased any earlier losses and the U.S currency may extend its run today as statement from the G8 meeting in Japan may show that the member are focusing on inflation as the primary concern to the global economy.
The Pound plunges to a two week low versus the Dollar as industrial production slumps by more than initial forecasts in May
The Pound continued to decline against the majors yesterday, dropping under 1.9700 versus the Dollar and falling to a low of 1.2555 versus the Euro as government bonds rallied following a report that UK manufacturing contracted by more than previous estimates in May.
A report released last week from the Chartered Institute of Purchasing and Supply showed that construction activity had dropped to the lowest level since Labour came to Power in 1997.
However, the Pound suffered a strong intraday slide after a broader measure of industrial production increased the probability that the UK economy will slip into recession while a downturn in output will exacerbate the well publicised dip in home values and household spending.
Factory production slipped 0.5% compared to the revised numbers in April as the index fell to a reading of 102.7 in May and to the lowest level since September. Manufacturing accounts for 15% of UK gross domestic product while a downturn in service sector growth clearly shows that the outlook for the economy is deteriorating.
The Bank of England will meet this week and have considered raising interest rates to curb inflation but at this stage a rebound in policy would cripple economic growth as the slowdown spreads to the manufacturing sector.
Despite rising to a high of $2.0003 versus the Dollar last week, the UK currency slid a further 0.9% yesterday and the bearish sentiment surrounding the Pound may continue this morning following the release of the DCLG housing market index.
The Euro made widespread gains against the majors yesterday, shrugging off reports in Germany that growth in manufacturing had slumped as commodity price gains and slowing growth weighs on confidence.
German production fell 2.4% from April to record the biggest monthly decline since February 1999 and the report is just the latest illustration that the global slowdown is slowly filtering through to Europe.
The European Central Bank has thus far focused on the upside risks to price stability as inflation accelerates to the highest level in 16-years following a record high surge in food and fuel prices.
Nevertheless, the Euro stood firm despite suggestions that a downturn in manufacturing will give the ECB limited scope to raise interest rates beyond 4.25% but the heightened concerns over a UK recession may continue to drive the Euro higher against the Pound.
Although the Dollar registered modest losses against the Euro yesterday, the U.S currency took advantage of broad Sterling weakness while also benefiting from a surprising drop in oil prices after Iran’s Foreign Minister, Manouchehr Mottaki, expressed confidence in talks with the West regarding the country’s nuclear program.
The escalating tensions between Iran and Israel has helped drive the price of oil above $145 a barrel but OPEC President, Chakib Khelil, said yesterday that the 48% increase in prices this year was more related to the Dollar exchange rate than issues over supply.
Subsequently crude oil for delivery in August fell 2.7% to $141.85 a barrel in New York but the Dollar failed to capitalise against the Euro, falling from a one week high, amid increased appetite for high-yielding assets, which suggests that credit market losses will help drive U.S stocks lower.
The Pound trades sharply lower against the Dollar as we build up to the Bank of England interest rate announcement on Thursday
Following on from last week, the Pound declined against the majority of the major currencies as the dwindling sentiment surrounding the outlook for growth led to speculation that rising prices will propel the economy to the brink of recession.
Oil prices have continued to hit record highs over the past week and have remained well above $140 a barrel as concerns over supply escalate amid mounting tensions between Israel and Iran. The impact on consumer price inflation will probably see prices hit 4% later this year but the Bank of England can’t afford to raise interest rates in the medium term as growth in manufacturing and service industries slip into contraction.
The focus this week will inevitably fall on the Bank of England interest rate announcement on Thursday and given the current economic climate, the MPC will probably leaves rates on hold at 5.0%.
The minutes from the meeting will not be released until later this month so the Pound may fail to find any support amid a packed week of UK economic data.
The BCC Quarterly manufacturing survey along with the industrial production numbers are expected to point to further downside risks to the economy.
Elsewhere the DCLG and Halifax house price surveys will probably show that home values continued to fall in June after declining 6.3% this year.
Nevertheless, the Pound is still trading towards the high of the long established trading range against the Euro while Dollar buyers may wish to place a stop order in the market to protect against further Sterling losses.
The Euro posted a weekly decline against the Dollar and also suffered sharp losses against the Pound after the ECB President, Jean-Claude Trichet, failed to give any clear insight into a further increase in rates.
Despite the Central Bank’s decision to lift interest rates by a quarter of a percentage point on Thursday, the Euro declined on speculation that policy makers wouldn’t raise again after Trichet said that last week’s move would bring inflation back towards target.
The staunchly hawkish stance of the ECB’s governing council has been softening to a degree in recent weeks as policy makers recognise the increased risks to economic growth.
The tone of the accompanying statement disappointed many economists who were hoping for a series of rate increases this year as inflation threatens to the exceed 4.0% and climb to the highest level in nearly 20 years.
Nevertheless, just 24 hours after the statement two members of the ECB’s governing council said fighting inflation is still the top priority even as growth falters.
The speculation surrounding the outcome of the U.S nonfarm payrolls report last week saw the Dollar plunge to a low of 2.0003 versus the Pound while oil prices continued to hit record highs and weigh on sentiment.
Nevertheless, the report was almost completely in line with expectations and the Dollar subsequently benefited from news in Europe and reports in the UK that manufacturing and services PMI slipped into contraction.
Stock and bond markets were closed for Independence Day on Friday and the tentative price action surrounding the Dollar suggests that the U.S currency could be poised to make further gains against the Pound after closing under 1.9850 on Friday.
Like the Euro-zone the U.S economic calendar is light this week so the focus will switch to the G8 meeting in Japan and the Dollar could benefit if the members indicate that they are prepared to intervene in order to prevent currency fluctuation.
The Euro declines against the majors after the ECB President, Trichet, fails to provide any indication of a further rate increase
The Pound took advantage of broad Euro weakness yesterday to stage a strong intraday rally by the close last night but the UK currency declined against the majority of the major currencies as speculation increased that the Bank of England will refrain from raising interest rates this year.
The dwindling sentiment surrounding the outlook for economic growth has led to speculation that rising prices will propel the economy to the brink of a recession while recent economic reports have indicated a greater slump manufacturing and services.
The Chartered Institute of Purchasing and Supply said in a statement earlier this week that construction activity had slumped to the lowest level since records began in 1997.
The Pound had declined back towards the support at 1.9850 as the report was accompanied by news that Britain’s biggest homebuilder, Taylor Whimpey Plc, had suffered a record drop in share prices after failing to raise extra capital from investors.
The UK currency extended those losses yesterday after a separate report showed that growth in service industries contracted in June by the most since October 2001.
An index of business sentiment fell to a reading of 47.1 last month while a statement from the Bank of England showed that UK Bank’s may impose even tighter lending conditions over the coming months.
The unrelenting increase in oil prices will continue weigh on consumer spending as fuel costs hit record highs and concerns over a recession has brought the FTSE 100 index close to its lowest level in three years.
The Euro plummeted against the Dollar yesterday, dropping by the most in more than two months while the single currency also recorded sharp losses versus the Pound after the European Central Bank President, Jean-Claude Trichet, failed to give any clear insight into the probability of a further increase.
The ECB’s governing council members elected to raise the benchmark lending rate by a quarter of a percentage point yesterday, bringing the yield differential between Europe and the U.S to 225 basis points.
However, the focus of attention was always going to be on the tone and language used in the accompanying statement where Trichet played down the prospects of any further interest rate increases this year.
The ECB Chairman disappointed most economists and even suggested that July’s move would help bring inflation back towards the 2.0% target.
In the build up to the announcement, the Euro rallied against both the Pound and the Dollar amid speculation that the Central Bank would indicate that further rate increases may be necessary in order to bring inflation down from the highest level in 16-years.
Despite oil prices rising above $144 a barrel, Trichet said that a July rate will help the ECB ‘achieve their objective’ while the Central Bank insisted that he has “no bias” to raise rates beyond the current 4.25%.
The Dollar benefited from widespread Euro and Sterling weakness yesterday while the uneventful U.S nonfarm payrolls report delivered pretty much what the market had anticipated. Although companies slashed jobs for a six straight month in June, payrolls fell 62,000 from the previous month and the unemployment rate held steady at 5.5% after rising to the highest level in twenty years.
However, the weakening sentiment surrounding the U.S labour market combined with reports that service industries contracted in June and signalled that the economic slump may deepen and prevent the Fed from raising interest rates.
The report from the Labour market indicates that rising unemployment will fail to support the economy while higher fuel prices and falling home values will limit consumers ability to spend. Nevertheless, the Dollar managed to close under the support at 1.9848 versus the Pound last night but further movement today may be limited considering the U.S stock market is closed for the 4th July Holiday.
The Pound declined against the majors yesterday amid reports that the biggest UK home builder, Taylor Whimpey Plc, failed to raise additional capital
The Pound slumped to the lowest level in three weeks against the Euro yesterday and also consolidated back towards the support at 1.9860 versus the Dollar after news broke that Britain’s biggest homebuilder, Taylor Wimpey Plc, suffered a record drop after failing to raise fresh capital from investors. The Pound declined against all but one of the 16 most actively traded currencies yesterday while an industry survey showed that the UK’s construction industry contracted at the fastest pace since records began in 1997. A spate of recent economic reports has indicated that the downturn in manufacturing combined with falling home values and slowing consumer spending could propel the economy towards a recession. UK mortgage approvals slumped to the lowest level in at least nine years in May while home values have dropped by the most in June since 1992 while former MPC policy makers Stephen Nickell said that the Bank of England should avoid raising interest rates as the mortgage market edges towards “famine”. The Pound fell 0.6% against the Euro by the close of trading last night but the UK currency bounced back above 1.9900 versus the Dollar as the focus switches to the ECB rate announcement and the U.S nonfarm payrolls report. The Euro looks poised for a sharp upward move against the Dollar with a break above 1.6000 imminent depending on the tone of Jean-Claude Trichet’s comments in the aftermath of the ECB interest rate announcement this lunchtime. The market has largely discounted a 25 basis point increase in borrowing costs but the focus will fall squarely on the tone and language in the accompany press conference where the ECB President, Jean-Claude Trichet, may reiterate the upside risks of inflation. In an interview with a German newspaper yesterday, Trichet warned that there was an inherent risk of inflation “exploding” this year and urged other Central Banks to act quickly and decisively. The Euro rallied higher against both the Pound and the Dollar yesterday while a separate report from the EU showed that producer prices jumped a record 7.1% in May. The report increased speculation that the ECB will signal a further tightening of rates over the coming months but the Euro will come under significant pressure should Trichet adopt a more neutral stance in the accompany statement and acknowledge the threats to economic growth. The Dollar plunged to the lowest level in two months against the Euro and still looks destined to revisit the $2.00 level versus the Pound amid speculation that the monthly U.S job report will confirm that payrolls dropped for a sixth consecutive month. The ADP employment index, which provides an insight into the Nonfarm payrolls numbers, showed that U.S companies shed more jobs than initial forecasts in June while the unrelenting rise in oil prices continues to dominate and weigh on Dollar sentiment. The widely anticipated report from the Labour Department will probably show that companies slashed 60,000 jobs last month but a number greater than this could rekindle concerns over a recession.
The Pound briefly revisited the $2.00 level against the Dollar yesterday as oil prices continue to climb
The Pound rallied higher against the Dollar yesterday and briefly revisited the $2.00 level for the first time in over two months while the UK currency also registered modest gains versus the Euro as the impact of weaker housing and manufacturing data was offset by the further increase in oil prices.
The price of crude oil has risen 48% this year alone amid concerns over supply while tensions in the middle east escalate following reports that Israel is increasingly likely to attack Iran this year as OPEC’s second largest oil producer acquires enough enriched uranium to build a bomb.
The U.S news channel ABC claimed that the statement came from an unidentified source at the Pentagon while the International Energy Agency said that supplies may not keep up with demand through 2013, which will keep prices elevated as oil settled just above $140 a barrel last night.
In terms of economic data, the Pound again shrugged off weaker economic data after a report from the Nationwide Building Society showed that UK house prices fell by the most since 1992.
The average cost of a home in Britain declined 6.3% from this stage in 2007 while a separate report from the Chartered Institute of Purchasing and Supply showed that growth in manufacturing unexpectedly contracted in June.
Tighter lending conditions and soaring commodity prices are bringing the economy closer towards a recession while the report indicates that policy makers can’t risk raising interest rates after the slowdown spreads to manufacturing.
As we build up to the ECB interest rate announcement on Thursday, the tentative price action surrounding the Euro is hardly surprising but the single currency took advantage of broad Dollar weakness yesterday while a report in Germany showed that unemployment dropped to the lowest level in nearly 16-years.
The number of people out work fell 38,000 from the official numbers in May to bring the jobless rate down to 7.8% and the lowest since August 1992, signalling that Europe’s largest economy remains resilient to a global slowdown.
The positive sentiment surrounding the Euro may continue this morning as the sole economic report released in the Euro-zone is expected to show that producer price inflation accelerated to an annual pace of 6.7%.
The correlation between rising oil prices and the decline in Dollar sentiment is becoming increasingly apparent while the U.S currency plunged to a near three week low against the Euro yesterday as rising energy prices are likely to weigh on spending and hurt the broader economy.
Although the economic calendar has been light this week, the focus of attention will again be fixed on the geo-political issues arising in the Middle East while the ADP employment index will provide an insight into Non Farm payrolls released on Thursday.
The Pound remained largely unchanged despite a further drop in consumer credit and house prices
The Pound remained largely unchanged against the majors yesterday, consolidating above the major support at 1.9850, despite reports that UK consumer confidence dropped in June to the lowest level in 18-years and the period that preceded the end of Margaret Thatcher’s reign as Prime Minister.
The index of UK consumer sentiment fell to the lowest level since March 1990 while a separate report from Hometrack Ltd showed that house prices fell to the lowest level since the survey began in 1990.
Slowing consumer spending and falling home values will inevitably weigh on growth but the Bank of England Governor, Mervyn King, said last week that slowing economic growth would help contain inflation.
The BoE, like many Central Bank’s across the globe, face a difficult balancing act in measuring the slowing pace of the economy against record high commodity prices and must decide on whether to raise interest weeks next week.
The escalating threat of a recession still looms over the UK economy while Gordon Brown’s poll ratings just a year after taking office has seen Labour’s popularity plummet to the lowest since World War Two.
Elsewhere, the Pound also reversed earlier losses against the Euro after a report from the Confederation of British Industry showed that business confidence amongst UK banks and lenders recorded its steepest fall since 1990.
The Euro declined against the Dollar yesterday and also fell 0.1% versus the Pound as the tentative price action surrounding the single currency is in anticipation of the outcome from the ECB interest rate announcement this Thursday.
The flash estimate of the harmonised index of European consumer prices showed that inflation accelerated by more than initial forecasts as record high food and fuel costs increase the pressure on policy makers to raise interest rates and threaten the pace of economic growth.
The annual pace of inflation in the Euro-zone rose to 4.0% year-on-year in June and to the fastest pace in over 16-years and the report will shift the focus back on to the tone and language in the ECB press conference for any indication of a further increase over the coming months.
Nevertheless, there are some members within the governing council who believe that the mounting risks to growth warrant a more neutral stance on policy. However, a rare public division from Jean-Claude Trichet yesterday showed that the ECB Chairman is leaning towards a more aggressive stance on the current risks to price stability.
The Dollar ended a five-day losing streak against the Euro yesterday, paring its monthly decline against the single currency to just 1.3%, but the greenback may struggle to on hold to any gains as the ECB are expected to raise interest rates on the same day that U.S job growth contracted for a six consecutive month.
Data Released 1st June
U.K 00:01 Gfk Consumer Confidence Survey (June) U.K 07:00 Nationwide House Price Survey (June) U.K 09:30 CIPS Manufacturing PMI (June) EU 10:00 Unemployment Rate (June) U.S 15:00 Construction Spending (May) U.S 15:00 ISM Manufacturing (June)
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