Sterling / Euro and US Dollar
Following on from last week, the pound has opened below 1.2000 against the Euro and is holding just above $1.4800 against the dollar.
The main focus this week for the U.K will fall on the Post Election emergency budget, which is due to be released tomorrow afternoon. Tough measures are anticipated as the new coalition government attempt to reduce the U.K Budget deficit.
Therefore, as we build up to possibly the most extensive public spending cuts since Margaret Thatcher’s reign, the Pound may continue to weaken, as the government attempts to plug the deficit – currently the highest among the Group of Seven nations.
Some guidelines have already been released in terms of spending cut-backs, meanwhile on the taxation front there has been speculation over an increase in capital gains and VAT.
Minutes of the previous Bank of England policy meeting are also due to be released this week, and whilst interest rates in the U.K have remained on hold, markets will be watching the minutes closely for any indication of future policy – especially in terms of inflation/future interest rate increases.
Recent reports have indicated that U.K inflation has accelerated above the government’s upper 3% limit and as the economy gathers momentum, speculation that policy makers are beginning to feel uncomfortable with interest rates at a record low of 0.5% has increased.
In the United States, in a light week of economic data, the focus will fall on the monthly Federal Reserve policy meeting which is due to take place on Wednesday. Interest rates in the U.S. are anticipated to remain on hold with little expectation of change to their current policy stance. Markets will however, closely scrutinise the post meeting statement for any subtle changes in wording and will watch closely to see if there are any references to the sovereign debt crisis in Europe – which has intensified substantially since their last policy meeting.
In the Euro-Zone, concerns over sovereign debt are likely to continue to dominate – even though market sentiment has shown slight signs of improvement over the past few days. Data due to be released from the Euro-Zone this week could pose a threat, with negative forecasts for closely-watched indices including German consumer confidence for July.
Central banks in Norway, Hungary and the Czech republic are also due to meet this week – all are expected to keep interest rates on hold.
EUR/USD
Stock markets rallied and risk sensitive currencies appreciated versus the USD overnight after China announced over the week-end that it will allow greater flexibility in its currency.
The move, seen as a step towards global rebalancing, has been welcomed by the U.S and Europe and is anticipated to help ease trade tensions, and reduce the need for further monetary tightening in China.
The euro hit one month highs of $1.2484 versus the USD this morning – moving the rate further away from the four year low of $1.1875
Crude oil prices rose 2% as the week’s trading got underway, reaching their highest level since early May after China’s announcement raised expectations of higher petroleum imports by the world’s second-largest oil user. However, despite the positive tone – China’s announcement is unlikely to result in anything more than a modest Yuan appreciation.
Data Released 21st June
U.K 07:00 – Rightmove House prices
HUN 14:00 – NBH Rate announcement
Related posts:
- FX126 Foreign Exchange Daily Insight – Sterling remains under pressure against the dollar
- Foreign Exchange Daily Insight – The Pound continues to decline ahead of next week’s emergency budget
- FX127 Foreign Exchange Daily Insight – Sterling continues to remain under pressure
- Foreign Exchange Daily Insight – The Euro is under pressure again against the dollar, sterling and the Yen
- FX055 Foreign Exchange Daily Insight – The Pound rallies in anticipation the BoE will exit emergency measures
