The Pound made robust gains against the majors yesterday, firming an additional 0.5% versus the Euro to peak at 1.4970, the highest point since June 2005, while against the Dollar, Sterling advanced beyond the resistance level at 1.9000 following a particularly strong report on the UK housing market. Recent surveys from Halifax and Nationwide has showed house prices to be accelerating at the fastest pace in over 2-years despite the Bank of England’s surprise decision to raise UK interest rates to 4.75% in August. Therefore, it looks increasingly likely that the MPC will lift rates by a further quarter-point next month as growth in the housing sector continues to accelerate and absorbs higher borrowing costs. The Pound rallied yesterday on the release of UK mortgage approvals for the month of September, which unexpectedly rose to highest level in two and a half years at 126,000 compared with a revised 120,000 the previous month and the report suggests that UK consumers are undeterred by rising mortgage rates.
There is a plethora of significant economic data released in the UK this morning with the focus falling on the Gfk gauge of consumer sentiment, which is widely expected to ease slightly in October. Elsewhere, the Pound may receive a further boost from the governor of the BoE, Mervyn King, who delivers a speech to the House of Lords economic affairs committee this afternoon and is expected to declare the need for a further tightening of UK of monetary policy. We are fast approaching the psychologically important resistance level at 1.5000 against the Euro and buyers of this currency would be well advised to take advantage of the current rate or at the very least place a stop order at 1.4900 to protect against any adverse market movement. The Euro has been under intense pressure against the Pound over the past few weeks amid a sparse supply of significant European data but this morning the ailing currency may receive a much needed boost as Euro-zone unemployment is expected to shrink to 7.8% in the report for September. Elsewhere, the flash estimate for Euro-zone inflation is also released this morning and is expected to remain relatively unchanged at 1.7% in the initial estimate, which is slightly under the Central Bank’s 2.0% comfort zone and suggests moderating inflationary pressures in the face of falling oil prices. However, with the planned value-added tax increase in Germany next year, Euro-zone inflation is not expected to remain below the ECB’s target for long. Elsewhere, the EC sentiment index for consumer and industrial confidence is released this morning and may stay relatively unchanged from a reading of 109.3 in October.
The Dollar fell by a further 0.2% against the Pound yesterday but managed to make modest gains versus the Euro following a particularly soft report on U.S economic growth as personal spending rose by 0.1% in September following a 0.2% increase the previous month. However, while U.S personal income grew by 0.5% over the same period to increase by the most in three months, the PCE deflator, which is the Fed’s preferred gauge of U.S inflation actually decelerated, quashing any notion that policy makers will raise interest rates from the current 5.25%. Growth in the labour market and falling fuel prices are positive news for the American consumer and will soften the effects of a slump in the U.S housing sector this year as the Fed look to keep interest rates steady over the coming months. In terms of economic data, the Dollar may receive a boost this afternoon as consumer confidence is expected to rise to the highest level since April this month as lower fuel prices encourages spending.
Data Released 31st October
UK 10:30 Gfk Consumer Confidence (October) UK 11:00 CBI Distributive Trades (October) UK 14:35 BoE’s Mervyn King testifies to the House of Lords Economic Affairs Committee
EU 10:00 EC Economic Sentiment (October) – Consumer / Industrial EU 10:00 Flash HICP (October) EU 10:00 Unemployment Rate (September)
U.S 15:00 Chicago PMI (October) U.S 15:00 Consumer Confidence (October)
Following on from last week, the Dollar came under intense pressure against the majors as we trade back up towards 1.9000 against the Pound after the Federal Reserve elected to hold U.S interest rates at 5.25% for the fourth month in succession. The no change in policy for the month of October was widely anticipated although the accompanying statement wasn’t as hawkish towards rising inflationary pressures as some had expected and as a result, we believe the Fed will keep rates on hold over the coming months as policy makers look for further evidence of a revival in the housing sector. The Dollar may decline further against the majors ahead of a key week of economic data with the focus falling on the monthly U.S employment report on Friday where it is widely anticipated that the economy added 125,000 jobs in October although the unemployment rate may stay unchanged at 4.6%. Elsewhere, there is some significant data released this afternoon in the States with the PCE deflator, the Fed’s preferred measure of U.S inflation, expected to rise by a modest 0.2% this month.
The negative sentiment surrounding the Euro has continued over the last week as we continue to hold steady around 1.4900 versus the Pound. There is a host of significant economic factors this week, which could lend a boost to the ailing currency with the focus falling on the ECB interest rate announcement on Thursday and although we expect policy makers to hold rates at 3.25% the following statement will give us an insight into the prospect of a further rate hike in December. Historically, the chairman of the ECB, Jean-Claude Trichet, will use the term “strong vigilance” in his statement to give the market notice of an impending rise in Euro-zone interest rates the following month and we can expect the Euro to make gains against the majors if a firm indication is provided.
Despite a sparse supply of economic data, the Pound continued to make substantial gains against both the Dollar and the Euro last week but the positive sentiment surrounding sterling can be attributed to the likelihood of a further quarter-point rise in UK interest rates on the 9th November. The sustained and unrelenting growth in the housing sector combined with a pick-up in consumer sentiment has given policy makers the scope to continue monetary tightening this year in order to rein in inflation, which has been above the government’s 2.0% target for the majority of 2006. In terms of economic data, UK mortgage approvals are expected to show a modest rise this month from 119,000 in September while UK house price inflation is forecast to ease slightly from 8.2% last month. Elsewhere, the governor of the BoE, Mervyn King is due to appear before the chairman of the House of Lords economic affairs committee tomorrow where he is expected to signal that a further tightening of UK rates is needed before the turn of the year.
Data Released 30th October
UK 09:30 Consumer Credit (September) UK 09:30 Mortgage Approvals (September)
U.S 13:30 Personal Spending / Income (September) - Core PCE Deflator
The Dollar lost ground against the majors last night as the Federal Reserve elected to hold U.S interest rates at 5.25% for the third consecutive month, which was widely anticipated although the tone of the accompanying statement didn’t match investor’s expectations. Following a host of hawkish rhetoric from Fed officials over the past month and a string of positive economic data, the market was hoping for a strong indication that the Reserve Bank would hold interest rates at the current level in the first quarter of 2007. Instead, the tone of the statement stuck closely to the language used in the September meeting and diminished the prospect of a further rate hike following a massive drop in oil prices over the last quarter.
The Dollar dropped significantly against the Pound as we open this morning’s session above 1.8800 and the greenback may come under further pressure this afternoon with the release of New Home sales data, which may mirror the previous report earlier this week and show sales down to an annual rate of 1.048 million in September. The dramatic slump in the housing market this year has contributed heavily the downturn in economic growth after the Fed decided to lift U.S interest rates seventeen times over a two year period. Elsewhere, a separate report on U.S durable goods orders may show a rise of roughly 2.0% in September following an unexpected decline of 0.5% the previous month.
The Euro made significant gains against the majors yesterday, firming 0.5% against the Euro and pushing through the support at 1.4900 versus the Pound following a stronger-than-expected survey on German business confidence. The Ifo index climbed to a reading of 105.3 this month despite the consensus forecast suggesting a modest drop towards 104.5 as the manufacturing component of the index rose to the highest level since June. The index supports the view that the ECB will need to continue lifting interest rates over the coming months as inflation pressures and economic growth continues to advance despite the introduction of the value added tax increase at the start of next year. The Euro received a further boost against Sterling this morning following a positive report on German consumer confidence, which rose to the highest level in five years as households step up spending before the tax increase in January.
Data Released 26th October
U.S 13:30 Initial Jobless Claims (w/e 21st October) U.S 13:30 Durable Goods Orders (September) U.S 15:00 New Home Sales (September)
The Pound has been making steady gains against the majors in recent weeks but following a report from the Confederation of British Industry yesterday, Sterling eased 0.1% against the Dollar and the Euro. The CBI industrial trends survey, which provides a good insight into UK manufacturing activity, came in weaker than expected and the report suggests that economic growth will begin moderating in the coming months, which will in turn lead to lower inflationary pressures and prevent any further rate increases being necessary. However, the monthly survey also supported the view that rising prices will lead to a one more quarter-point rise in UK interest rates next month and fully expect the BoE to lift rates to 5.0% by the turn of the year.
The Euro inched lower against the Dollar yesterday following a disappointing report on French consumer spending while elsewhere, upward revisions of the Euro-zone current account deficit proved unable to boost the ailing currency despite expectations that the ECB will continue monetary tightening in December. In addition, Industrial orders jumped significantly in the figures for August by a massive 14.3% year-on-year despite expectations a more modest rise towards 9.7%. The consistent performance of European industrial production and manufacturing output has been the primary source for economic growth this year and sustained gains in the European export industry has led to the fastest growth since 2000. The Euro has lost further ground against Sterling this morning despite a better-than-expected report on German business confidence, which rose for the first time in four months in October led by a sharp decline in oil prices.
The Dollar made modest gains against both the Euro and the Pound yesterday as we build up to the monthly FOMC rate announcement this evening and the tension in the market is directed at the Fed’s accompanying statement, which should provide an indication of future monetary policy and whether the committee will keep U.S interest rates on hold at 5.25% in the coming months. However, in recent weeks there have been a barrage of hawkish rhetoric from key Fed officials and if the statement doesn’t match expectations, the Dollar could come under pressure against the Pound. There was a sparse supply of economic data yesterday with the sole release being the Richmond business activity index, which provides an insight in to the ISM report later this month and confirmed an underlying weakness in the U.S manufacturing sector. In addition to the FOMC interest rate announcement, there is some significant housing data released this afternoon in the States and following the unexpected rise in sales last month, existing homes sales is widely expected to decline to an annual rate of 6.23 million in September.
The Dollar advanced yesterday, firming 0.7% against the Pound and a further 0.5% versus the Euro despite the apparent lack of any significant economic data released in the States as falling oil prices may boost growth in the U.S economy going into the final quarter of the year. Ahead of the FOMC rate announcement tomorrow, the Dollar may make further gains against the majors as recent hawkish rhetoric from a number of key Fed officials has shifted interest rate expectations in the first quarter of 2007. However, we expect the Federal Open market committee to leave U.S interest rates on hold at 5.25% this month and the accompanying statement may support the view that the Fed will adopt a ‘wait and see’ policy for the remainder of 2006. There is some significant data released this afternoon with the Richmond Fed Survey, which will provide an insight into manufacturing ahead of the ISM report later this month.
The Pound came under pressure yesterday despite the lack of data released in the UK but there is a significant report this morning from the Confederation of British Industry who release their monthly report on industrial trends in the UK manufacturing sector. It is widely anticipated that the survey will show a drop in activity in October and bearing in mind the report is watched closely by the Bank of England in determining interest rates, we can expect the Pound to decline if the survey comes out in line with expectations.
The Euro stood firm against the Pound yesterday as German retail sales came in largely as expected and yet another member of the ECB’s governing council has publicly announced the need for further monetary tightening. The Central Bank has raised Euro-zone interest rates on five occasions this year and we fully expect policy makers to increase borrowing costs by a further 25 basis points in December to end the year at 3.50%. Council member, Nout Wellink has joined the chorus of voices calling for a further rate hike later this year, saying that current borrowing rates are still “very low” despite the fact that inflation has seemingly dropped below the Bank’s 2.0% target primarily due to a sharp decline in oil prices. The Euro may receive a boost this morning from an economic report on European industrial orders, which is widely expected to increase by 0.5% in August following the fastest economic expansion in six years. Data Released 24th October
UK 11:00 CBI Industrial Trends Survey (October)
EU 09:00 Current Account Balance (August) EU 10:00 Industrial Orders (August)
Following on from last week, the Pound remained strong against the majors after a preliminary report on UK GDP showed that the economy grew at a faster pace than expected in the third quarter led by growth in the service industries and manufacturing sector. Economic growth has increased at the fastest pace in three years in 2006 and the report last Friday will only cement the prospect a further quarter-point rise in UK interest rates on the 9th November. The calendar for UK economic data is particularly light this week with the focus falling on hometrack house prices and the CBI industrial trends survey, which may provide a boost for the Pound as output remains at an elevated level despite the obvious drop in oil prices.
The Euro has continued to decline against the majors over the past week despite hawkish rhetoric from a number of key ECB officials, backing calls for a further tightening of monetary policy before year end, stating that current interest rates are still at a relatively low level. Nevertheless, the Euro has failed to make any gains against the Pound amid speculation that economic growth has peaked in 2006 with the introduction of the value-added tax increase in Germany at the start of next year weighing on sentiment. There is a sparse supply of significant European data released this week with the focus falling on the German Ifo index for Business confidence and we can expect the Euro to come under further pressure against the Pound if expectations continue to shrink from a reading of 104.9 last month.
Without doubt, the most significant event this week will be the October FOMC interest rate announcement on Wednesday and although we expect the Federal Reserve to hold U.S rates at 5.25%, the accompanying press conference may retain a hawkish tone with regards future policy following recent inflation reports and comments from Fed officials. The Dollar has come under sustained pressure against the Pound over the last week, falling back towards 1.8770 at the close last week but there is a host of data released in the States this week that may prove crucial for Dollar sentiment. The focus will fall on the advanced GDP report for the third quarter released on Friday and it is widely anticipated that U.S growth will slow to 2.2% following a dramatic slowdown in the housing market over the same period.
Data Released 23rd October
UK 00:01 Nationwide House Prices UK 00:01 Hometrack House Prices
The Pound declined against the majors yesterday following a worse-than-expected report on UK retail Sales, which fell for the first time in eight months for September led by a dramatic fall in petrol prices and rising unemployment. Retail sales accounts for over a third of UK consumer spending, which fell 0.4% last month despite forecasters anticipating a rise of roughly 0.3% as rising jobless claims, larger mortgage repayments and high inflation prevents consumers from hitting the high-street. The report, together with a significant drop in consumer price inflation earlier this week, could potentially spark speculation that the Bank of England will hold off raising UK interest rates next month and thusly the Pound has come under some pressure against the Euro. The focus this morning in terms of economic data will be the preliminary estimate for GDP growth in the third quarter and forecasters are anticipating that economic growth year-on-year will accelerate to 2.7% from 2.6% in the second quarter.
The Euro received a timely boost yesterday as German forecasts for economic growth were revised up from previous estimates to 2.3% in 2006 while 2007 growth will slow to 1.4%, which suggests that the largest economy in Europe has peaked and will begin moderating next year following the introduction of the value-added tax in January 2007. Elsewhere, another member of the European Central Bank has joined the calls for the Central bank to remain vigilant on inflation despite the 25% drop in oil prices over the last 3-months, which has pushed the annualized rate back under the 2.0% comfort zone.
The Dollar initially made gains against Sterling yesterday although by the close of trading last night we were significantly higher, trading above the trend resistance at 1.8750 following a host of poor economic reports this week with declines in consumer and producer price inflation backing calls for a cut in U.S interest rates in the first quarter of 2007. The Dollar dropped a further 0.4% yesterday following a report on manufacturing in the Philadelphia region, which unexpectedly fell for a second consecutive month in September. The Fed index fell to a reading of minus 0.7 last month and the report will only fuel speculation that a slowdown in the sector combined with the obvious slump in housing will lead to a cut in U.S interest rates early next year.
The Pound declined yesterday, dropping 0.2% against the Dollar following the release of the minutes from the Bank of England’s last monetary policy meeting where the MPC elected to hold interest rates at 4.75% for the second month in a row. However, with UK inflation still above the Central Bank’s 2.0% target, two members out of the eight strong committee voted to lift interest rates this month citing wage growth and other inflationary pressures for the need to increase borrowing costs. The six other members including the Governor, Mervyn King, all voted to keep rates on hold in October but it does look increasingly likely that the BoE will hike interest rates to 5.0% in the first week of November. Elsewhere, a separate report on the UK labour market showed that unemployment had increased to a five-year high last month as the influx of migrant workers swells the workforce. The number of Britons out of work and claiming benefits rose by an additional 10,200 in September, taking the annual rate up to 962,000, the highest since December 2001 while growth in wages slowed in all sectors except services, where it was unchanged at 3.5%. The Pound may receive a boost against the majors this morning as UK retail sales probably increased last month following the sustained growth in house prices and record employment encourages consumer spending.
The Euro fell against the Dollar yesterday, falling a further 0.2% despite a hawkish rhetoric from ECB member Klaus Liebscher who reiterated concerns that inflation risks remain at a high level due to rising taxes and growth in wages. His statement followed a similar tone of the recent press conference with the chairman, Jean-Claude Trichet, stating that there was no need to change current market expectations, which implies that a further quarter-point rate rise is likely in December. There is a sparse supply of economic data released in Europe this week but a report yesterday on the Euro-zone trade balance showed that the deficit in goods and services actually narrowed in August following a 3.2% rise in exports over the same period.
The Dollar rose against the majors yesterday, firming an additional 0.2% against the Euro and the Pound following a surprisingly strong housing report, which decreased the risk of a cut in U.S interest rates early next year. New Housing Starts increased by 5.9% last month to an annual rate of 1.77 Million, which was way ahead of expectations and suggests the housing slump may be nearing bottom. However, a separate report also showed that building permits dropped for an eighth consecutive month to the lowest level since 2001, which indicates that growth in housing starts may not be sustainable in the coming months. In addition, the Dollar stood firm in the face of some particularly soft U.S inflation data as consumer prices fell by the most since November 2005 last month, which correlates with the decline in energy costs that may cool inflation in the fourth quarter. The consumer price index dropped by 0.5% from August while core prices excluding food and energy rose 0.2% for a third month in succession.
Data Released 19th October
UK 09:30 Retail Sales (September)
U.S 13:30 Initial Jobless Claims (w/e 14th October) U.S 15:00 Leading Indicators (September) U.S 17:00 Philly Fed Index (October)
The Pound continued to make gains yesterday, firming 0.5% against the Dollar at a one-week high and a further 0.4% versus the Euro to breach the 1.4900 barrier following a glut of economic data on both sides of the Atlantic. The Pound rallied after a report on consumer price inflation supported the view that the Bank of England will need to lift UK interest rates next month. Consumer prices rose 2.4% year-on-year in September, down slightly from the previous month, which was largely in line with expectations but inflation is still above the Central Bank’s 2.0% target despite a sustained drop in oil prices since Mid-July. Several BoE policy makers including the governor, Mervyn King, have expressed concerns of rising inflationary pressures with regards wage growth but it seems a 25% drop in oil prices will not direct speculation away from a probable rate hike in November. There is a host of significant economic data released in the UK this morning with the focus falling on the release of the minutes from the BoE last policy meeting where the MPC elected to hold interest rates at 4.75%. We will be looking for any further insight into the November rate announcement and the minutes will also indicate how the 8-strong committee voted last month. Elsewhere, a separate report on the UK labour market may show unemployment unchanged last month with the jobless rate holding steady at 3.0% despite an influx of migrant workers into the UK.
The Euro declined against Sterling yesterday but made modest gains against the Dollar following a damaging report on German investor confidence, which unexpectedly fell to the lowest reading in over 13-years this month as higher interest rates and the planned tax increase next year has a negative impact on the outlook for economic growth. The ZEW centre for European Economic Research reported that investor’s expectations dropped to a reading of minus 27.4, the lowest since March 1993. In addition, the Euro came under further pressure following a less-than-convincing report on Euro-zone inflation as consumer prices rose by just 1.7% year-on-year in September as falling energy prices pushed the rate below the ECB’s 2.0% target. However, although the report will do little to help the Euro, it is unlikely to sway interest rate expectations as it looks increasingly likely that the Central Bank will lift rates by a further quarter-point in December.
The Dollar came under intense pressure yesterday following a glut of significant economic data released in the States as the Producer Price index showed moderating inflationary pressures with prices falling by the most since April 2003 following a dramatic drop in energy costs over the same period. However, excluding the volatile food and energy gauge, prices paid by U.S producers increased by 0.6% last month, the most since January 2005. The report will do little to calm interest speculation in the States as investors shift away from a cut in U.S interest rates early next year to hold steady at 5.25%. Elsewhere, a separate report on U.S industrial production showed that output fell by more than anticipated in September, dropping 0.6% from the previous month, the biggest fall in a year. The Dollar may come under further pressure this afternoon following a report on consumer prices, which may show moderating inflation concerns after a sustained drop in energy prices over the last two months, while elsewhere, a report on the U.S hosing market may show that builders started work on fewer new homes last month, cementing the view that housing will be unable to support economic growth in the final quarter.
Data Released 18th October
UK 09:30 BoE MPC Minutes UK 09:30 Unemployment (September) UK 09:30 Average Hourly Earnings (3 months to August)
The Pound received a timely boost yesterday, firming 0.2% against the Dollar and the Euro following a report on the UK housing market, which showed robust growth in the sector with prices jumping 2.0% on the month in October,. bringing the annual growth rate to a 22-month high. According to the Rightmove house price index, the sector continues to expand despite the Bank of England’s decision to lift UK interest rates in August and the report yesterday will only increase expectations of a further quarter-point rise next month. There is some hugely significant data released in the UK this morning with the release of the September consumer and retail price index, which are expected to confirm moderating inflationary pressures following a dramatic fall in energy prices over the last quarter. Consumer prices may rise by just 0.1% from August while the annual rate of inflation is widely expected to shrink back towards 2.4%, which is still above the government’s 2.0% target for 2006.
The Euro failed to make any gains against the majors yesterday following a distinct lack of fundamental data released in the Euro-zone as we around the resistance level at 1.4850 against the Pound. However, there is some significant economic data released this morning that could potentially reinvigorate interest rate expectations in the region with the release of the harmonised consumer price index. Prices are expected to remain unchanged in September following the initial estimate of 1.8% the previous month and the seemingly moderating inflation concerns correlates with the 25% drop in oil prices since mid-July. Elsewhere, the Euro may receive a boost from a separate report on Euro-zone industrial production, which is widely expected to remain at an elevated level as strong momentum in the manufacturing sector continues to spur economic growth in the third quarter. In addition, the Euro may come under increased pressure this morning following a report on economic sentiment in Europe’s largest economy as the ZEW survey is expected to decline further this month, which will raise concerns of moderating economic growth.
The Dollar held firm against the Euro yesterday following a better-than-expected report on manufacturing in the New York area as the Empire State index rose to a reading of 22.9 in October, the highest level in four months. The unexpected increase can be attributed to the recent drop in energy prices and the cost of raw materials and it seems investment will help boost economic growth in the final quarter of this year and in turn weather the housing slump, which threatens to curtail economic expansion. There is a host of significant data released in the States this afternoon with the focus falling on the Producer Price Index, which is widely expected to show a 0.7% drop in prices last month following a sustained fall in the fuel costs. Elsewhere, the Dollar may come under further pressure from a separate report on U.S industrial production, which may show a 0.1% drop in output as producer prices decline for the first time since February.
Data Released 17th October
UK 09:30 Consumer Price Index (September)
EU 10:00 Harmonised CPI (September) EU 10:00 Industrial Production (September)
GER 10:00 ZEW Expectations Balance (October)
U.S 13:30 Producer Price Index (September) U.S 14:00 TICs Net Capital Inflows (August) U.S 14:15 Capacity Utilisation (September) U.S 14:15 Industrial Production (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
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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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