We witnessed a significant day of market movement yesterday with the Dollar plunging to a yearly low against the majors following Ben Bernanke’s comments at the Joint Economic Committee of Congress. The Federal Reserve chairman gave the clearest indication yet that they are nearing the end of their current rate cycle after raising U.S interest rates fifteen consecutive times in just 21-months to a five-year high of 4.75% with the next scheduled FOMC meeting on May 10th. As a result, the Dollar weakened to trade above 1.8000 against Sterling for the first time in 2006 and with some important U.S data released this afternoon, we will be looking for further evidence of a slow-down in the economy with first quarter GDP released at 13:30.
UK House Price growth dropped sharply in April according to a monthly nationwide survey with prices rising by just 0.1% against an increase of 1.1% last month and annual house price inflation fell to 4.8% from 5.3% in March. There is some significant data released in the UK this morning with Consumer Confidence expected to decline in April following higher energy prices and rising fuel costs.
The Euro continues to make gains against the majors after reaching 1.2540 against the Dollar in the aftermath of Ben Bernanke’s comments yesterday afternoon and we continue to trade under 1.4400 against Sterling with Eurozone inflation expected to rise from 2.2% in March to 2.3% this month with the initial estimate released this morning.
There was some significant data released in the UK yesterday with GDP projecting that the economy accelerated to its fastest pace in a year during the first quarter, expanding 0.6% due in part to a revival in Industrial Production and an overall improvement in UK exports. However, without any significant British data released until Friday, we will look at Consumer Confidence with many analysts anticipating a slight decline in April following a significant climb in fuel prices.
The Dollar remained relatively unchanged yesterday despite an unexpected rise in Durable Goods Orders in March and a significant increase in the Sales of New Homes, which jumped to the highest level in almost 13 years. Orders for Durable Goods rose by 6.1% against forecasters expectations of a 1.8% increase from February and New Home Sales rocketed by 13.8% last month to an annual rate of $1.213 Million. As a result, the Dollar failed to react and we continued to trade up towards 1.7900 against Sterling despite the data showing positive growth in Manufacturing output and posed some unexpected relief for a declining U.S housing market.
In the past week or so, the Euro has made significant gains against the majors, particularly the Dollar after trading up to a 7-month high this week and we can expect to see further Euro solidarity this morning with German Unemployment figures set to narrow by 0.1% in April.
The Euro has made significant gains in the past 24hrs with German Business Confidence unexpectedly rising to a 15-year high in April against forecasters predictions of a slight decline from March due to higher energy and oil prices. The ifo Index rose to 105.9, the highest level since April 1991, which has increased speculation that the ECB will need to raise interest rates again in the coming months as growth in Europe’s largest economy begins to gain momentum and there is some significant data released in the Euro-zone this morning with Industrial Production set to climb 0.2% in February.
With regards Sterling, UK Factory Orders declined to their slowest pace in more than a year, however, the Confederation of British Industry continue to remain positive regarding future manufacturing output despite a slight drop in UK exports this month.
The Dollar was given an unexpected boost yesterday with U.S Existing Home Sales rising 0.3% in March to $6.92 Million while many analysts were anticipating further evidence of a cooling housing market. In addition, U.S Consumer Confidence unexpectedly rose to its highest level in four years primarily due to an improving market, which seems to have quashed concerns over higher petrol prices. There is some important data released this afternoon in the States with U.S Durable Goods Orders expected to climb 1.8% in March and if New Home Sales also shows unexpected growth, speculation will intensify that the Federal Reserve will continue raising interest rates twice more this year.
Initially, Sterling rallied yesterday on the release of UK Retail Sales data, which came out largely in line with expectations, showing a rise of 0.4% in March and British Mortgage lending increased by its largest amount in nearly two years last month, suggesting that the housing market continues to look buoyant, rising to £5.4 Billion from £4.7 Billion in February.
The Dollar came under further pressure yesterday as comments from Qatar and Russia increased speculation that central banks are shifting their reserves away from the Dollar and we can expect to see some movement this afternoon with U.S Consumer Confidence expected to decline in April to 106.0 from 107.2 the previous month. Coupled with that, Existing Home Sales in the States is predicted to drop to $6.7 million in March, following a slight improvement in February and provides yet more evidence that the U.S housing market is in decline.
With regards the Euro, French Business Confidence rose to a five-year high yesterday and German Industrial Production gained for a third month running, providing yet more evidence that economic growth is beginning to accelerate in the euro-zone into the second quarter. As a result, the Euro traded down towards the 1.4400 level and we can expect to see further market reaction today with the German Ifo business climate survey expected to remain relatively robust in April but is expected to show a partial decline from March, primarily due to a sharp rise in oil prices.
In the past week, the Dollar has weakened significantly against the majors amid speculation that U.S economic growth will begin to wane into the second quarter and the Federal Reserve is nearing the end of its current rate cycle. The Dollar traded down to a seven month low against the Euro last week and we are currently trading towards 1.7900 against Sterling, following a statement from the Russian finance minister indicating that oil should be priced in Euros as appose to Dollars as the spiralling price of crude oil closed at $72.79 a barrel on Friday.
We have some significant data released in the States this week with U.S. Consumer Spending, due out tomorrow, poised to show a decline to 106.0 in April primarily due to higher petrol prices and rising energy bills. In addition, the dollar may come under further pressure with U.S Existing and New Home Sales both expected to show a decline in March and slowing manufacturing growth will provide an indication that the Federal Reserve are to likely to raise interest rates just once more this year.
In the UK today, Sterling may receive a boost with Retail Sales forecasted to show a rise of 0.4% in March, despite the timing of the Easter period, which came too late to be included in today’s figures and year-on-year growth is predicted to rise to 2.5% from 2.1% the previous month. With Regards the Euro, Industrial Production in Germany is expected to show a sharp increase in February with the year-on-year growth rate jumping from 3.2% to 5.8% and there is some important data released in the euro-zone tomorrow with the German Ifo index expected to show a slight decline in April primarily due to rising oil prices and euro-zone inflation, due out on Friday, is anticipated to show an improvement to 2.3% in April.
Sterling weakened against the majors yesterday as UK inflation unexpectedly slowed to its weakest pace in more than a year as Consumer Prices rose 0.2% in March, putting the annual rate at 1.8% against the government’s target of 2%. As a result, Sterling traded down against the Dollar and the Euro as speculation increased that the Bank of England will need to cut interest rates in order to keep inflation on target in the coming months.
In recent weeks, the Dollar has received a boost from a seemingly improving labour market as initial jobless claims in the U.S fell by more than 10,000 last week to 303,000 from 313,000 a week earlier, signalling the lowest unemployment rate since 2001. The Philly Fed Index, which focuses on manufacturing in the Philadelphia region, rose by more than anticipated in April to 13.2 from 12.3 the previous month as a growing overseas market, particularly in Asia and Europe, increased demand. In addition, an index of U.S. Leading indicators unexpectedly fell for a second month in March, declining 0.1% from February, which was the first two-month drop in over 5 years and provides yet further evidence that economic growth will slow in pace into the second quarter.
With regards the Euro, French Consumer Spending declined for the first time since the turn of the year in March, dropping 0.6% and there is also some important data released in the Euro-zone this morning as February’s Trade Balance figures are expected to widen from €10.8 Billion. Data Released 21st April
Sterling has enjoyed a mini-rally in the past 24hrs as the Bank of England’s Monetary Policy Committee released the minutes of its last meeting, again showing a spilt of 8-1 in favour of keeping interest rates at 4.50% in April as Stephen Nickell voted for a quarter-point cut for the fifth month running. We briefly traded up through 1.4500 against the Euro and although we closed just below this level, there is some significant data released in the UK this morning with the Consumer Price Index expected to show a mild improvement in the month of March. In the Euro-zone, following Romanov Prodi’s narrow election win, Italian Consumer Confidence is forecasted to show a drop in April as the closest Italian national election in history prompted concerns that the government will be incapable of expanding economic growth in Europe’s fourth largest economy.
With regards the Dollar, U.S Consumer Prices rose by 0.4% in March, which was largely in line with expectations but Core Prices rose by the most since March 2005, jumping 0.3% last month. However, the Dollar continues to struggle against the majors after dropping to a seven month low against the Euro and we briefly traded upto 1.7900 against Sterling yesterday afternoon before closing just under this level.
There is some significant data released in the States this afternoon with U.S. Leading Indicators expected to be unchanged in March following a 0.2% decline in February, supporting suggestions that economic growth will slow into the second quarter. In addition, the Philly Fed Index, which examines manufacturing in the Philadelphia region, is predicted to support the view that the Federal Reserve can keep lifting interest rates and may give the dollar a much needed boost after dropping 4% against the Euro in the first fourth months of the year.
The Dollar has been suffering in the past week amid suggestions that economic growth will slow into the second quarter and yesterday we witnessed further evidence of a cooling housing market in the States as builders started work on the smallest number of new houses in a year last month, falling 7.8% to an annual rate of 1.96 million. However, U.S. Producer Prices came out in line with expectations, showing growth of 0.5% in March as costs of crude oil and petrol prices soared to record highs.
In addition, the minutes of the Federal Reserve’s last policy meeting was released last night and the Fed chairman, Ben Bernanke, has indicated that they are nearing the end of their current rate cycle following 15-rate increases in 21 months. Without stipulating when a tightening of monetary policy will take place, many analysts are speculating that the Fed will lift interest rates in May and then pause at 5%. In the aftermath of the announcement, the Dollar weakened against Sterling to trade just above 1.7800 and dropped to a seven month low against the Euro. There is also some significant data released in the States this afternoon with the Consumer Price Index set to show an increase of 0.4% in March and Core Prices are expected to rise 0.2% from February.
In the UK today, the minutes of the MPC’s last policy meeting are released this morning after the Bank of England elected to keep interest rates at 4.50% on April 5th. We have already seen some data released this morning in the Euro-zone with German Producer Price Inflation maintaining a 24-year high last month, due primarily to higher energy costs as the price of oil has averaged $60 a barrel since the middle of last year. Oil prices climbed to a record high yesterday of $71.60 a barrel as concerns over the situation in Iran intensified.
Following on from last Thursday, Retail Sales in the U.S. rose by more than expected in March as an improving labour market and higher household incomes bolstered consumer spending with the average growth rate accelerating to its fastest pace since the third quarter of 2004. There is some significant data released in the U.S. this afternoon with the Producer Price Index set to show a rise of 0.4% in March following a decline of 1.4% in February. The dollar is being hampered as further evidence of a cooling housing market continues to fuel concerns that economic growth will begin to slow into the second quarter, prompting the Federal Reserve to stop raising interest rates. As a result, we traded as high as 1.7730 overnight and a close around this level will look very positive for sterling with the minutes of that last FOMC meeting released this evening.
Sterling may come under pressure this week as speculation that slowing economic growth will prompt the Bank of England to lower UK interest rates following disappointing Retail sales data from the BRC and unemployment rising to its highest level in almost 3 years. The BoE release the minutes of its March meeting tomorrow after electing to hold interest rates at 4.50% for the eighth month in succession. There has already been some positive data released today in the UK today with the average price of a British home rising to a record high for a third month in April, climbing 1.1% to £205,674.
With regards the Euro, the market is relatively unchanged from last week as we continue to trade under 1.4500 and without any significant data released in the euro-zone until tomorrow with Industrial Production and German Producer Prices, we don’t anticipate too much movement today.
Data Released 18th April
U.S. 13:30 Producer Price Index – Excluding Food and Energy
Sterling stood firm yesterday after the news that the number of Britons out of work and claiming benefits rose by almost double market expectations in March while UK Average Earnings in the three months to February climbed to 4.2% year-on-year against the 3.6% forecasted. The March claimant count showed an increase of 12,600 new claims last month while currency exchange analysts were anticipating a rise of 6,500, pushing the unemployment rate up 3.0%, the highest level since October 2003.
The Euro weakened against Sterling yesterday as the European Commission cut it’s forecast for economic growth in the euro-zone as rising oil prices and higher interest rates harm consumer spending. The economy will expand 0.6% in the first and second quarters of the year and 0.5% in the third after the EC forecasted a 0.7% growth rate just last month.
With regards the Dollar, the U.S Trade deficit narrowed by more than anticipated to $65.7 Billion in February from the record gap last month, led by a temporary decline in Chinese imports. The Dollar was largely unaffected on release of the deficit as the 4.1% drop from January did little to ease demand for sanctions. There is some significant data released in the States this afternoon with U.S Retail Sales predicted to show a 0.4% rise last month, due primarily to an improving labour market and a pick-up in consumer spending. The Dollar may strengthen if the figure is released in line with expectations as speculation will increase that the Federal Reserve will lift borrowing costs twice more this year.
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