The Pound came under intense pressure against both the Euro and the Dollar yesterday and the general consensus is that we could see further downside movement particularly after the damaging omission from the UK office of national statistics yesterday. The ONS announced that a significant error had been made in one of their inflation models, leading to an incorrect measure of UK national income in the second quarter. Originally, wage growth was estimated at 6%, which would of been one of the key reasons for the Bank of England raising UK interest rates last month. However, in the revised estimate yesterday the figure came in at 4.8%, easing inflation concerns and severely dampening the chances of a further rise in UK rates before the turn of the year. As a result, the Pound declined against the Euro by nearly a whole cent on the session to close well under 1.4800 and we saw further losses against the dollar following a particularly positive report on the U.S housing market earlier this week. There is some significant economic data released this morning in the UK, which is unlikely to revive Sterling sentiment with mortgage approvals widely expected to remain unchanged at 120,000 in August while consumer confidence may show a marginal improvement this month.
The Euro has been making substantial gains against the Pound after reaching a yearly low at 1.4950 earlier this week and the positive sentiment continued yesterday as German unemployment unexpectedly declined in August ahead of the ECB interest rate announcement next week. From a technical point of view, the rejection of the break above 1.4910 leaves us with a particularly negative outlook going forward after we failed to bounce back after such a sharp reversal. Therefore, we can expect the Euro to make further gains against the Pound and there is some significant economic news released in the Euro-zone this morning that could potentially influence the ECB’s decision to raise rates beyond October. Firstly, the EC sentiment index, which analyses industrial and consumer confidence in the region is widely expected to remain at an elevated level this month while the flash estimate consumer price index may show sustained inflationary pressures, leading to further speculation that the ECB will need to continue raising interest rates.
The Dollar has proceeded to make significant gains over the Pound this week following an unexpected pick-up in the housing sector for the month of August, which has rekindled speculation that the Federal Reserve may raise U.S interest rates once more before the turn of the year. Therefore, the economic data released this week has taken on added significance and yesterday the Dollar remained firm against the majors despite a less than convincing report on the final estimate for second quarter GDP. U.S economic growth slowed to 2.6% from the first quarter, which was well under expectations as a considerable drop in homebuilding and consumer sentiment dampened expectations. The U.S economy expanded at 5.6% in the first three months of the year and the subsequent slowing of the economy can be attributed to a significant rise in oil prices and the Fed’s prolonged campaign of 17-consecutive rate hikes in little under two years. Elsewhere, the weekly jobless report showed that the number of people out of work and claiming benefits actually fell in the week ending the 23rd of September. Over the course of this week, the Dollar has improved by almost 4 cents against the Pound and overnight we managed to break through the trend support at 1.8750 with the major support level at 1.8600, the low from the previous downside move. There is a host of significant economic data released in the States this afternoon with the report on personal income and expenditure taking centre stage and if the Fed’s preferred measure of inflation shows a modest increase for the month of August, we can expect the Dollar to make further gains as speculation intensifies over a possible rate hike before the year-end. In addition, the final estimate of the Michigan sentiment is also released today and the consensus forecast is for a modest rise this month while manufacturing activity in the Chicago area may decline from a reading of 57.1 in August to 55.0 this month.
Data Released 29th September
UK 09:30 Mortgage Approvals (August) UK 10:30 Consumer Sentiment (September)
EU 10:00 EC Sentiment Index (September) – Industrial / Consumer Confidence EU 10:00 Flash Consumer Price Index (September)
U.S 13:30 Personal Income & Expenditure (August) – Core PCE Deflator
The Pound came under increased pressure yesterday, trading down against both the Euro and the Dollar following some particularly negative commentary from a member of the Bank of England’s monetary policy committee regarding a further rise in UK interest rates. The Pound has been making significant gains amid increased speculation that the MPC will lift rates once more before the turn of the year but David Blanchflower, who was the sole voice for a ‘no change’ in the August meeting, publicly stated that economic growth is likely to slow over the coming months while domestic inflation is likely to moderate as immigration is underpinning wage pressures. However, the negative sentiment that surrounded the Pound in the aftermath of his statement was fairly limited following the release of the CBI distributive trades survey, which came in ahead of expectations and provides further evidence of robust growth in retail spending as unemployment is reduced while the housing market continues to accelerate. There has already been some significant economic data released in the UK this morning as the nationwide index reported that house prices increased by the most in eight months in September, suggesting that the August rate hike did little to curb growth in the housing sector. There average cost of a home rose 1.3% from August with prices rising 8.2% year-on-year, which is the most since February 2005.
The Euro has been making steady gains against the Pound and the Dollar following some particularly positive economic data released yesterday morning as German consumer confidence unexpectedly increased this month despite significantly higher interest rates this year and a planned VAT tax increase at the start of 2007. In addition, the Euro-zone M3 money supply was also released and came out ahead of expectations as the 3-month moving average increased to 7.9% in the month of August, which was way in excess of the ECB’s 4.5% target. The gains in money supply into Europe will only add to inflationary pressures and put further impetus on the Central Bank to lift interest rates by a further quarter-point in October. There has been some economic news already this morning as German unemployment dropped for a fifth month in six in September as consumer confidence in Europe’s largest economy reached a five-year high this month.
The Dollar has made yet further gains against the Pound in light of some dovish commentary from the Bank of England yesterday despite a seemingly negative report into U.S durable goods orders, which unexpectedly dropped in August by 2.0% excluding transportation following a 2.7% decline the previous month and it was the first back-to-back decrease since May 2004. The U.S economy has entered a period of moderation as consumer spending falters and the housing market continues to retreat, leading to companies scaling back their investment plans in the face of slowing economic growth. Elsewhere, the Dollar received an unlikely boost after a report into new home sales rose unexpectedly in August and after a surprise increase in existing home sales earlier this week, speculation is mounting that the slowdown in the housing sector is beginning to ease. There is some hugely influential data released this afternoon in the States with the final estimate for U.S GDP in the second quarter and it is widely anticipated that the economy expanded at an annual rate of 2.9% from the first as a dramatic slowdown in the housing market this year hampers economic growth. The consensus mirrors the government’s forecast in the preliminary estimate released last month but if growth has exceeded expectations in the second quarter, we can expect the Dollar to make further gains against Sterling.
The Euro lost yet more ground against Sterling yesterday, falling to a new yearly low for the fourth day in succession as we traded above 1.4950 for the majority of the European session. Following a damaging report from the ZEW centre of economic research last week into German investor confidence and the seemingly moderating inflationary pressures, the Euro has come under increased pressure against the Pound as a significant drop in oil prices threatens to curb economic expansion and therefore dampen interest rate expectations. As a result, the Ifo index into German business confidence took on added significance yesterday and reported a decline in sentiment for the third month in a row in September, slipping to a reading of 104.9, which was actually slightly ahead of expectations. Economic growth in Europe’s largest economy is widely expected to slow dramatically into 2007 as higher interest rates and a planned tax increase weigh heavily on consumer spending. However, it can also be argued that the German economy has accelerated to the fastest pace since 2000 this year and the planned increase in sales tax could prompt consumers to spend now before the introduction in January. This has been emphasised in a report this morning into German consumer confidence, which has risen to the highest level in 5-years this month. The index, which aims to forecast household spending a month in advance, rose to a reading of 8.8, the highest since November 2001 as the faster economic growth and falling unemployment help boost sentiment.
The Pound has looked increasingly strong over the past few weeks as speculation continues to mount that the Bank of England will need to raise UK interest rates again before the turn of the year with many economists factoring in a further quarter-point increase in November. There is some significant data released this morning in the UK with the CBI distributive trades survey expected to provide further evidence of sustained growth in retail spending despite the BoE’s surprise rate hike in August. In addition, a report on second quarter gross domestic product is released this morning with the final estimate set to be unchanged from earlier reports with economic growth coming in at 2.6% year-on-year in the second quarter.
The Dollar has made significant gains against the Pound this week following a better than expected report on the sales of existing homes in the States as we drop back under 1.8900 against Sterling. The dollar received a timely boost yesterday as U.S consumer confidence rebounded in September following a sharp rise in petrol prices since July and the report suggests that the Federal Reserve have the scope to continue raising interest rates if inflationary pressures begin to resurface. The index reported that sentiment rose to a reading of 104.5 this month following a nine-month low in August as the labour market shows signs of growth and personal income continues to rise. With the sustained slump in the U.S housing market weighing heavily on economic expansion, cheaper fuel prices will provide some temporary relief to the consumer. There is some significant data released this afternoon in the States, which could effectively push the dollar higher against the majors with durable goods orders, excluding transport, expected to increase by 0.8% in August, which will provide further evidence that corporate investment will help spur economic growth. Elsewhere, a report this afternoon may provide further evidence of a slowdown in the housing sector as the sales of new homes are expected to fall to an annual rate of 105 Million in August as higher interest rates discourage first time buyers.
Data Released 27th September
UK 09:30 GDP (Q2 Final) UK 09:30 Current Account Balance (Q2) UK 11:00 CBI Distributive Trades (September) EU 09:00 M3 / 3 Month moving Avg (August) U.S 13:30 Durable Goods Orders (August) U.S 15:00 New Home Sales (August)
The Euro lost yet more ground against Sterling yesterday, falling to a new yearly low for the fourth day in succession as we traded above 1.4950 for the majority of the European session. Following a damaging report from the ZEW centre of economic research last week into German investor confidence and the seemingly moderating inflationary pressures, the Euro has come under increased pressure against the Pound as a significant drop in oil prices threatens to curb economic expansion and therefore dampen interest rate expectations. As a result, the Ifo index into German business confidence took on added significance yesterday and reported a decline in sentiment for the third month in a row in September, slipping to a reading of 104.9, which was actually slightly ahead of expectations. Economic growth in Europe’s largest economy is widely expected to slow dramatically into 2007 as higher interest rates and a planned tax increase weigh heavily on consumer spending. However, it can also be argued that the German economy has accelerated to the fastest pace since 2000 this year and the planned increase in sales tax could prompt consumers to spend now before the introduction in January. This has been emphasised in a report this morning into German consumer confidence, which has risen to the highest level in 5-years this month. The index, which aims to forecast household spending a month in advance, rose to a reading of 8.8, the highest since November 2001 as the faster economic growth and falling unemployment help boost sentiment.
The Pound has looked increasingly strong over the past few weeks as speculation continues to mount that the Bank of England will need to raise UK interest rates again before the turn of the year with many economists factoring in a further quarter-point increase in November. There is some significant data released this morning in the UK with the CBI distributive trades survey expected to provide further evidence of sustained growth in retail spending despite the BoE’s surprise rate hike in August. In addition, a report on second quarter gross domestic product is released this morning with the final estimate set to be unchanged from earlier reports with economic growth coming in at 2.6% year-on-year in the second quarter.
The Dollar has made significant gains against the Pound this week following a better than expected report on the sales of existing homes in the States as we drop back under 1.8900 against Sterling. The dollar received a timely boost yesterday as U.S consumer confidence rebounded in September following a sharp rise in petrol prices since July and the report suggests that the Federal Reserve have the scope to continue raising interest rates if inflationary pressures begin to resurface. The index reported that sentiment rose to a reading of 104.5 this month following a nine-month low in August as the labour market shows signs of growth and personal income continues to rise. With the sustained slump in the U.S housing market weighing heavily on economic expansion, cheaper fuel prices will provide some temporary relief to the consumer. There is some significant data released this afternoon in the States, which could effectively push the dollar higher against the majors with durable goods orders, excluding transport, expected to increase by 0.8% in August, which will provide further evidence that corporate investment will help spur economic growth. Elsewhere, a report this afternoon may provide further evidence of a slowdown in the housing sector as the sales of new homes are expected to fall to an annual rate of 105 Million in August as higher interest rates discourage first time buyers.
Data Released 27th September
UK 09:30 GDP (Q2 Final) UK 09:30 Current Account Balance (Q2) UK 11:00 CBI Distributive Trades (September)
EU 09:00 M3 / 3 Month moving Avg (August)
U.S 13:30 Durable Goods Orders (August) U.S 15:00 New Home Sales (August)
Following on from last week, the Pound made further gains against both the Euro and the Dollar to trade above 1.4900 for the first time this year while Sterling also traded above 1.9000 versus the Dollar. That trend looks set to continue in the beginning of this week amid a plethora of significant data released in Europe and the States with the focus falling on the CBI distributive trades survey on Wednesday where the market will be looking for further evidence of a strong rise in retail spending. While elsewhere, UK house price inflation and mortgage approvals will provide some insight as to whether the strong growth in the housing market will be sustained going into the fourth quarter and therefore add to the case for a further rise in UK interest rates. There was also strong support from the Pound following comments from the deputy governor of the Bank of England, Sir John Gieve, who stated that he considered voting for a rise in rates this month where the MPC unanimously elected to hold their benchmark interest rate at 4.75%. As a result, Sterling rose 0.2% against the Euro to cross back above 1.4900 but was fractionally weaker against the Dollar following some surprisingly better U.S housing data.
The Euro continues to struggle against the Pound following a sparse supply of economic data released last week but many economists view the next four days as pivotal in terms of data with several important releases spread over the week. Firstly, the flash estimate for the harmonised consumer price index may show that inflationary pressures have moderated in the last month with forecasters anticipating a marginal fall below 2.0%, which correlates with a 20% drop in oil prices since July. Following the significant drop in German economic sentiment in the last month, the Ifo index released this morning will take on added significance as business confidence probably fell for a third month in September due to higher interest rates and the planned tax increase scheduled for 2007. The index is widely expected to drop to a reading of 104.4 in September from 105 in August and fall below the consensus is likely to hurt the Euro. Economic expansion in Europe’s largest economy is beginning to look bleak as a slowdown in global growth has a negative effect on German exports while the increase in value added tax will undoubtedly hurt consumer spending. However, it does look likely that the ECB will raise interest rates next week as the fastest growth since 2000 threatens to fuel inflationary concerns.
The Dollar has weakened significantly against the Pound in the last week following a damaging report from the Philadelphia Fed, which showed that manufacturing activity in the region declined for the first time since April 2003 this month. The index dropped 0.4% from a reading of 18.5 in August led by a significant decline in new orders and exports out of the U.S and therefore, the Chicago PMI and Richmond Fed surveys will be watched closely this week for further evidence of a slowdown in the manufacturing sector. It does look increasingly likely that the Federal Reserve will hold U.S interest rates for the remainder of this year but until the chairman, Ben Bernanke, publicly declares his intention to keep rates on hold, we can expect any Dollar weakness to be limited with the economic data released taking on added significance. The Dollar did receive an unlikely boost yesterday amid the release of some important housing data, which showed that sales of existing homes dropped by less than expected in August to an annual rate of 6.30 million. However, median house prices dropped 1.7% year-on-year last month, which was the first annual decline since April 1995. There is some significant data released this afternoon in the states with consumer confidence likely to improve in September from a nine-month low the previous month as a large drop in petrol prices lends a boost to sentiment.
Data Released 26th September
GER 09:00 Ifo Index (September)
U.S 15:00 Consumer Confidence (September) U.S 15:00 Richmond Fed Index
There is a lot of volatility in the Forex market at present and yesterday the Pound made significant gains against the majors, strengthening to a new-yearly high against the Euro at 1.4910 and we broke above 1.9000 versus the Dollar. The positive sentiment surrounding the Pound began with a better than expected report on the CBI industrial trends survey, which improved to a 21-month high this month, indicating that growth in the manufacturing sector will boost UK gross domestic product this year. However, price expectations for the next three months dropped by more than anticipated in September, dampening expectations of a further rise in UK interest rates this year. Following the Fed’s decision to hold rate in the U.S this week and the particularly soft comments on the inflation, the Pound has made significant gains against the Dollar, closing well above 1.9000 last night.
The Euro has continued to struggle against Sterling over the past 24hrs, falling to a new yearly low for the second day in succession yesterday to trade above 1.4900. However, there has been some significant inflation data in France this morning, which has given the single currency a much needed boost with the Consumer Price index jumping by the most in seven years in the month of August following a significant fall in French unemployment. Consumer spending accounts for 15% of Europe’s third largest economy and the index reported an increase of 3.3% in August as the French economy accelerates at the fastest pace since 2001 this year, adding to the case for a further rise in Euro-zone interest rates.
The Dollar plummeted yesterday to a two week low against the Pound at 1.9050 and came under pressure versus the Euro as we head back above 1.2800 following a damaging report from the Philadelphia Fed, which showed that manufacturing activity in the region declined for the first time since April 2003. The index dropped 0.4% this month from a reading of 18.5 in August led by a significant decline in new orders and exports out of the U.S, which correlates with the ever widening gap in trade. Following a considerable slow-down in the U.S housing sector this year, the report yesterday will only fuel concerns that growth in manufacturing will continue to decline as economic growth slows in the fourth quarter.
The Pound made further gains against the majors yesterday, rising to a year high against the Euro following the release of the minutes from the Bank of England’s last policy meeting where the MPC elected to hold UK interest rates at 4.75%. It was widely regarded that the minutes would provide some insight into the possibility of further rise in UK interest rates this year and policy makers did highlight persistant inflation concerns. The chancellor has raised his growth forecast for 2006 in the last month and the IMF have also expressed concerns that UK inflation will rise towards 2.7% by the turn of the year, which is way in excess of the government’s 2.0% comfort zone. The minutes also showed that the eight-strong committee voted unanimously in favour of keeping rates on hold this month but it does look increasingly likely that the Bank of England will raise borrowing costs once more this year with many economists factoring in a probable hike in November. The Pound may make further gains this morning with the release of the CBI monthly trends survey, which showed that business expectations and new orders rose to a 20-month high in August and a strong figure is also expected tomorrow. Industrial production and manufacturing output will seemingly boost economic growth in the fourth quarter while the survey also highlights persistent inflationary concerns, which will only add to speculation that the BoE will raise interest rates again in November.
The Euro continues to struggle against the Pound falling to a year low yesterday at 1.4880 despite the apparent lack of economic data released this week and therefore, the Euro’s decline can be attributed to a technical move through the strong resistance at 1.4850. However, Italian industrial sales dropped by 2.5% in July while orders gained an additional 1.2% against expectations of a more modest rise of 0.2%. The Italian data is likely to have a minimal impact on Euro-zone interest rate expectations with the next scheduled announcement in early October. We fully expect the ECB to lift rates for the fifth time this year next month and many economists have suggested that by the turn of the year, Euro-zone interest rates will be set at 3.5%. Therefore, Euro buyers would be well advised to take advantage of the current rate or at the very least work a stop order around 1.4800 in order to protect against any adverse market movement.
The Dollar remained largely unchanged last night after the Federal Reserve elected to hold U.S interest rates at 5.25% for a second month in succession and the accompanying statement reiterated that inflationary pressures continue to moderate, primarily due to a dramatic cooling of the housing market and a sharp fall in oil prices over the last month. However, inflation is still above the Fed’s comfort zone although the chairman, Ben Bernanke, seemed to suggest that the 17-consecutive rate hikes over the last two years would be sufficient in bringing inflation back under control. Therefore, it looks increasingly likely that U.S interest rates will remain at 5.25% for the remainder of this year with the next move likely to be a cut in early 2007. The Dollar may come under further pressure today with the release of the Philly Fed index, which is widely expected to decline to a reading of 15.0 from 18.5 last month.
The Dollar came under increased pressure against the Pound yesterday amid some particularly soft U.S data, which may have a bearing on tonight’s FOMC rate announcement. Producer Price Inflation rose by less than anticipated in August with prices excluding food and energy falling to a three-year low, which only reiterates comments from the Fed chairman, Ben Bernanke, that U.S inflation will continue to moderate in the fourth quarter. The index showed that prices paid to U.S producers rose 0.1% on the month although the core rate fell 0.4% year-on-year in August, which is the first back-to-back monthly decline since the back end of 2002. Therefore, with seemingly moderating inflationary pressures at the consumer level aswell, it seems evermore likely that the Fed will hold U.S interest rates 5.25% for the second consecutive month. The Dollar also lost ground on the release of some soft housing data yesterday, which showed that construction declined by more than expected in August, reaching the lowest level in three years. The 6% drop in housing starts to an annual rate of 1.665 million last month means that builders started work on the lowest number of new homes since 2003 and a sharp drop in consumer demand will leave a record number of unsold homes swelling the market. Without any economic data released in the States today, the focus will fall heavily on the Federal Reserve interest rate announcement this evening and the consensus forecast is for a ‘no change’ in monetary policy this month, which is already 100% factored into the market and any comments suggesting a further rise in rates before the turn of the year will surely boost dollar sentiment.
There has been a distinct lack of fundamental data released in the UK this week but the Pound looks increasingly strong against the majors, firming an additional 0.3% against the Euro to close around 1.4850 last night. However, the focus this morning will fall on the release of the minutes from the Bank of England’s last policy meeting where the MPC elected to hold UK interest rates at 4.75% following a surprise hike in August. The minutes should provide an insight into how the 8-strong committee voted with a unanimous decision expected but the market will be looking for any indication of a further rise in rates before the end of the year with economists anticipating a likely rate hike towards November. In addition, there is a report this morning on public sector net cash requirement, which is the amount of money the government has to borrow in order to meet its expenditure.
The negative sentiment surrounding the Euro continued yesterday following a report on producer price inflation in Germany, which suggests that inflationary pressures may be moderating in Europe’s largest economy in the face of falling oil prices and higher interest rates. The Euro fell an additional 0.2% against the Dollar yesterday after German investor confidence dropped to the lowest level in over seven-years this month as rising interest rates and a planned tax increase next year hampered the outlook for growth in the region. The damaging report from the ZEW centre for economic research showed that the index dropped to minus 22.2 in September, which is the lowest level since January 1999. The German economy has grown at the fastest pace in six years in 2006 and the report yesterday provides further evidence that growth will begin to moderate next year.
Data Released 20th September
UK 09:30 BoE Minutes from September meeting UK 09:30 PSNCR
The Dollar made significant gains against the Pound yesterday in the build-up to the FOMC rate announcement tomorrow despite a host of negative economic data that effectively should of hampered any lingering dollar sentiment. Firstly, the U.S current account deficit widened by more than anticipated in the second quarter with the shortfall coming in at $218.4 Billion following a revised estimate of $213.2 Billion in the first three months of the year. The growing deficit poses a significant risk to economic stability as the gap in trade amounts to roughly 6.6% of gross domestic product. However, given the unexpected shortfall in the current account, the dollar held firm against the Pound, closing just under 1.8800 last night. In addition, a report from the Treasury showed that net capital inflows collapsed in July as foreign investor’s slowed purchases of U.S securities in the face of falling demand. Net holdings increased $32.9 Billion against expectations of a more modest fall towards $70 Billion from June and investments were therefore insufficient to cover July’s $68 Billion trade deficit. It looks increasingly likely that the Federal Reserve will hold U.S interest rates at 5.25% in the evening announcement tomorrow but there is some significant inflation data released this afternoon in the States, which may raise expectations of a further hike in rates this year. Producer price inflation is widely expected to follow the consumer price index in August with prices, excluding food and energy, falling to an annual rate of 3.8% from 4.2% in July, which falls in line with a significant drop in oil prices over the last month. In addition, there is some significant housing data released today, which is expected to show that builders started work on 1.720 million new homes in August, the fifth decline in the last six months as higher interest rates discourage first time buyers.
There is a distinct lack of economic data released in the UK this week with the focus falling on the minutes from the Bank of England’s last policy meeting tomorrow as the market looks for further evidence of a rise in UK interest rates later this year. Speaking at the G7 meeting in Singapore, Gordon Brown said that economic growth in Britain was stronger and more balanced in 2006 with the international monetary fund raising their forecasts for UK growth to 2.7% from April’s estimate of 2.5%. With the government’s target at 2.0%, it looks increasingly likely that the Bank of England will need to raise UK interest rates in order to rein in rising inflation concerns.
The Euro made gains against Sterling yesterday despite a damaging report on Euro-zone industrial production, which unexpectedly declined 0.4% against expectations of 0.2% increase in July. However, over the last few weeks several members of the ECB’s governing council have publicly announced their concerns over rising inflationary pressures and yesterday Klaus Liebscher reiterated their comments ahead of the next rate decision in the first week of October. Although, the Euro has come under pressure this morning following a report on producer price inflation in Germany, which slowed for the third month in August and correlates with the sustained drop in oil prices from a record level this year. Core prices fell to an annual rate of 5.9% in August from 6.0% the previous month, signalling that inflationary pressures may be moderating in Europe’s largest economy. In addition, the Euro may decline further later this morning on the release of the ZEW survey for economic sentiment in Germany, which is widely expected to decline further in August after recording the lowest reading since 2001 in July.
Data Released 19th September
GER 10:00 ZEW Expectations Balance (September)
U.S 13:30 Producer Price Index (August) - Ex Food & Energy U.S 13:30 Housing Starts (August)
Following on from last week, the Dollar remained firm against the Pound and the Euro on Friday despite some soft inflation data and an unexpected fall in industrial production in the last month. U.S consumer price inflation, excluding food and energy, rose 0.2% in August, which was largely in line with expectations and further emphasises that inflation seems to be moderating following the Fed’s sustained campaign in raising interest rates over the past two years. The focus this week will fall heavily on the FOMC rate announcement on Wednesday where it is widely anticipated that the Fed will hold interest rates at 5.25% for the second month in succession as the Reserve bank take time to assess how monetary tightening has contributed to a slowdown in economic growth. There is a host of significant data released this afternoon in the States that could weigh heavily on Dollar sentiment including a report from the National Association of Home Builders. The survey has reported a slowdown in the property market for the past 10-months in succession and is expected to decline further this month, raising concerns that the U.S economy is heading for recession. Elsewhere, the Dollar may come further pressure following a report on the U.S Current Account balance, which is widely expected to show that the deficit has widened in the second quarter from $208.7 to $215 Billion. The trade deficit reached a record level in July at $68 Billion and therefore the report this afternoon on net capital inflows will take on added significance as forecasters anticipate a drop towards $70 Billion in July, which will just about cover the ever widening gap in goods and services.
There was a distinct lack of fundamental data released in the Euro-zone last week and as a result, the Euro suffered against the majors, falling back towards the year high at 1.4850 against the Pound. However, the focus this week will largely fall on German consumer price inflation and the ZEW Expectations index tomorrow, which is widely expected to show a further decline in business confidence in Europe’s largest economy. The German CPI may also decline in August with core prices expected to drop in the face of falling oil prices while the scheduled increase in value-added tax, set to be introduced at the start of 2007, is expected to weigh on consumer spending. There is some significant data released this morning in the Euro-region with industrial production set to remain unchanged at an annual rate of 4.3% year-on-year in July. In the last week, a host of ECB policy makers have publicly stated their concerns over persistently higher inflation and also indicated that monetary tightening may continue into 2007.
There is a sparse supply of economic data released this week in the UK with the focus falling on the minutes of the Bank of England’s last policy meeting where the MPC kept interest rates on hold at 4.75% following a surprise increase in August. It is widely anticipated that the 8-strong committee voted unanimously to keep rates on hold last month but the minutes should provide an insight into the prospects of a further rate hike before the end of the year and any suggestion of this is likely to lend a boost to Sterling. Elsewhere, the CBI industrial trends survey may reflect the dramatic fall in oil prices over the last month, which will have a positive effect on input costs and suggest greater confidence in UK manufacturing.
Data Released 18th Sept
EU 10:00 Industrial Production (July)
U.S 13:30 Current Account (Q2) U.S 14:00 TICs – Net Capital Inflow (July) U.S 18:00 NAHB Housing Index (September)
by Adam Solomon
Sterling / Euro and US Dollar
The Pound made significant gains against a basket of currencies yesterday, rising through $1.56 against the Dollar to the highest level in five-months, while the UK currency also re-visited the resistance level at 1.20 versus the Euro. The Australian Dollar has declined heavily against the Pound and U.S... Read more
Daily Exchange Rate Forecast – July 28th
by Adam Solomon
Sterling / Euro and US Dollar
The Pound rallied to a fresh five-month high against the U.S Dollar this morning, while the UK currency also made strong gains versus the majority of the 16 most actively traded currencies. Sterling hit a high of 1.5575 in London, as global risk appetite continues to improve, diminishing... Read more
Turkish Lira Exchange Rate Forecast
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Foreign Currency Market Update – GBP / TRY Update
The much awaited European bank stress tests were completed on Friday. All major banks passed the tests including the four major UK banks that took part. Also giving the pound a boost on Friday was a strong second quarter GDP figure. Growth... Read more
New Zealand Dollar Exchange Rate Forecast
by Jon Beddell
Foreign Currency Market Update – GBP / NZD Update
The pound bounced by seven cents from July 13th to July 19th, but gave back those gains last week, making a new four week low on Thursday even as UK retail sales data for June beat expectations. Things looked a little better on Friday.... Read more
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