The Pound lost further ground against both the Euro and the Dollar yesterday amid a worse-than-expected report on the UK current account balance, which showed that the deficit had widened by more than anticipated in the third quarter. Sterling dropped 0.3% against the Dollar and a further 0.2% versus the Euro on the release of the data and the Pound failed to make any gains following a surprisingly robust report on UK GDP for the same period. The upward revision in economic growth for the third quarter showed that the economy expanded at the fastest annual rate in two years following a sustained pick-up in services and business investment over the past 12-months. The official figures showed that GDP rose 2.9% from this stage last year and it seems evermore likely that the Bank of England will continue monetary tightening in the New Year.
The Euro made gains against both Sterling and the Dollar yesterday as the outlook for European interest rates shifted towards a probable rise early next year following a particularly hawkish rhetoric from several ECB policy makers including the chairman, Jean-Claude Trichet. However, the single currency has come under a little pressure this morning as French business confidence unexpectedly declined as the increasing strength of the Euro hampered European exports.
The Dollar remained largely unchanged against the majors yesterday amid cautious trading ahead of the holiday period despite a barrage of economic data with the focus falling on the final GDP estimate for the third quarter. Following a dramatic slump in the U.S housing market this year, economic growth has slowed to 2.0% year-on-year in the third quarter, which may rekindle speculation of a cut in interest rates over the coming months. Elsewhere, a separate report showed that the number of people out of work and claiming first-time benefits actually rose last week to 315,000, which was largely in line with expectations. The Dollar may receive a boost this afternoon following a report on personal income and expenditure, which is considered the Fed’s preferred measure of U.S inflation. Growth in wages is widely expected to remain unchanged in November while the Core PCE deflator may show a modest rise of 0.1% on the month.
It was a mixed day for the Pound yesterday, declining modestly against the Euro but gaining 0.1% versus the Dollar following the release of the minutes from the Bank of England’s last policy meeting where the nine-strong committee voted unanimously to keep UK interest rates on hold at 5.0%. The current benchmark rate is at the highest level in five years and the minutes yesterday seemed to suggest that growth in wages and personal income may keep inflation well above target over the coming months. However, the MPC also highlighted that inflation would fall back in the longer-term and peak at 2.8% over the next few months, which perhaps explains why the Pound came under a little pressure against the majors. In a separate report, Sterling found further support as the Confederation of British Industry released their monthly survey, which showed that retail sales rose to the highest level in two years through December. In terms of economic data, the Pound may come under some pressure this morning as the UK current account balance is expected to show the deficit widening in the third quarter. While a separate report on UK gross domestic product may show that growth in the economy came in unchanged in the final estimate for the third quarter at an annual rate of 2.7%.
The Euro traded fractionally higher against Sterling yesterday and also rose modestly versus the Dollar after the chairman of the ECB gave a speech to the European Parliament’s economic affairs committee. Jean-Claude Trichet, who has been rather reserved in the past month regarding future policy, highlighted the upside risks to higher inflation and indicated that Euro-zone interest rates are set to continue rising into 2007. The Central Bank has forecasted that European inflation would remain well above the 2.0% target into next year despite six rate increases over the past 12 months. The main catalyst to a disruption in price stability would be the increased volatility in the oil market combined with demands for higher wages.
The Dollar continued to decline yesterday amid a sparse supply of economic data despite a dramatic increase in producer price inflation earlier this week. However, there is a host of significant data released this afternoon with the focus falling on the final estimate for U.S GDP in the third quarter. The report is expected to show that the economy expanded at the slowest pace in well over a year in the three months to September following a dramatic slump in housing and manufacturing this year. In addition, a separate report from the labour department may show that the number of people out of work and claiming benefits actually rose to 315,000 over the last week.
Data Released 21st December
UK 09:30 Final GDP (Q3) UK 09:30 Current Account Balance (Q3)
U.S 13:30 Final GDP (Q3) – GDP Deflator
U.S 13:30 Initial Jobless Claims (w/e 16 December) U.S 15:00 Leading Indicators (November) U.S 17:00 Philly Fed Index
The Pound continued to rally yesterday following a better-than-expected report from the Royal Institute of Chartered Surveyors, which showed that UK house sales had risen to highest level in two years for November. As a result, Sterling rose 0.7% against the Dollar to trade above 1.9700 overnight and a further 0.3% versus the Euro as the report fuels speculation that the Bank of England have the scope to continue raising UK interest rates next year. The focus today in terms of economic data will be the release of the minutes from the BoE’s last policy meeting where the monetary policy committee elected to hold rates at 5.00%. However, will inflation well above the government’s 2.0% target, the tone and language used in the statement will be crucial in identifying the possibility of a further rise in rates over the coming months. Elsewhere, Sterling may continue to make gains against the Dollar amid the release of the CBI distributive trades balance and from a technical perspective, the Pound may be on the verge of another big move versus its U.S counterpart.
The Euro received a timely boost yesterday, firming 0.6% against the Dollar as the Ifo sentiment index showed that German business confidence unexpectedly accelerated in December to the highest level since 1990. Following a decent surge in Euro-zone exports combined with increased hiring and investment this year, confidence climbed to a reading of 108.7 from November and it seems evermore likely that the German economy will be able to absorb the value-added tax increase in January. In addition, the robust growth in business confidence will only fuel speculation that the ECB will continue raising interest rates, a sentiment echoed by the chairman, Jean-Claude Trichet. After policy makers raised rates to 3.5% last month, Trichet acknowledged that the current lending rate was still relatively “low” and this mornings speech to the European Parliament will be watched closely for clues as to future policy.
The Dollar has declined against the majors this week and that trend continued yesterday despite a host of positive economic reports, which supported the view that inflation was quickening while the dramatic slump in housing may of peaked. Firstly, producer prices rose by the most since 1974 for the month of November while prices excluding the volatile food and energy gauge also rose more than expected. The index gained 2.0% last month from a 1.6% drop in October and the report will only support the Fed’s view that inflation risks continue to remain a threat to economic expansion. Elsewhere, a separate report on U.S housing starts also failed to boost the Dollar as builders started work on more new homes than anticipated. Housing starts came in at an annual rate of 1.588 million last month, which was a robust 6.7% higher than the previous month although building permits dropped to a nine-year low, which suggests that weakness in construction will persist into 2007.
Data Released 20th December
UK 09:30 BoE MPC Minutes December Meeting
UK 11:00 CBI Distributive Trades Balance (December)
Initially, the Pound declined against the Dollar yesterday, dropping 0.4% by the close of trading last night and it seems the increased volatility can be attributed to a winding down of dollar positions ahead of the holiday period. However, overnight Sterling found some support and made widespread gains against both the Euro and the Dollar following a typically robust report on UK house prices. The RICS house price balance held near the four-year high for the month of November and came in well ahead of expectations as a strengthening labour market and faster economic growth continues to propel house prices.
The Euro continued to decline against the majors yesterday, falling an additional 0.1% versus the Dollar and overnight we have traded above 1.4900 against the Pound following a distinct lack of economic data released in the Euro-zone. However, the single currency may receive a timely boost this morning amid the release of the German Ifo index, which is expected to show that business confidence remained at a 15-year high in December. The index will reflect the consensus forecast that the European economy will continue to expand in 2007 despite the introduction of the value-added tax increase at the start of next year.
The Dollar climbed against the majors yesterday despite a damaging report on the U.S current account, which unexpectedly showed that the deficit had widened to a record $225.6 billion in the revised estimate for the third quarter. The deficit was widely expected to narrow from the final $217.1 billion in the second quarter as the downturn in energy prices took effect. There is a host of significant economic reports released this afternoon in the States with the focus falling on the latest round of U.S housing data for the month of November. The number of housing starts is expected to rebound from the lowest level in over six years as a significant drop in prices helps spur demand. Elsewhere, a separate report from the labour department may show that producer prices rose 0.5% after falling 1.6% in October, which may rekindle concerns over rising inflation.
Data Released 19th December
GER 09:00 Ifo Index (December)
U.S 13:30 Producer Price Index (November) – Ex Food & Energy
The Dollar received an unexpected boost yesterday and managed to make some unlikely gains, firming 0.5% against the Euro and 0.3% versus the Pound following a surprisingly positive report on U.S retail sales. In stark contrast to retail activity in the UK, sales jumped 1.0% in the figures for November, which was much more than anticipated and it seems growth in sales may be able to support economic growth following the dramatic slump in housing and manufacturing this year. In light of the report, the Dollar rallied against the majors and it seems that a buoyant labour market combined with a significant rise in personal income will help boost consumer spending going into the New Year. There is some significant economic data released this afternoon with the focus falling on the weekly jobless report, which is expected to show that the number of first time claims filed in the week ending December 9th probably fell to 320,000 from 324,000 the previous week.
The Euro came under pressure yesterday falling against the Dollar and declining by a further 0.2% versus the Pound following a fundamental lack of economic data released in the Euro-zone and that trend may continue this morning with the ECB monthly bulletin taking centre stage. It is widely anticipated that the statement will mirror the tone and language of the press conference last week where policy makers elected to raise interest rates for the sixth time this year. The chairman of the ECB, Jean-Claude Trichet, seemed to suggest that a further tightening of monetary policy would be likely in the New Year as economic growth continues to expand at the fastest pace in six years while price pressures still remain a concern for policy makers.
Initially, the Pound rallied against the majors yesterday following a government report on the labour market, which showed that UK unemployment unexpectedly fell by the most in nearly two years in November while growth in personal income also accelerated, adding to the case for a further rise in UK interest rates. The number of people out of work and claiming benefits fell to an annual reading of 950,800 while the jobless rate remained unchanged for a ninth month in succession at 3.0%. With growth in the labour market seemingly gathering momentum and a significant rise in average hourly earnings will only add to speculation that the Bank of England intend to increase borrowing costs by a further 25 basis points in February as inflation continues to accelerate at the fastest pace in nine-years. In terms of economic data, the Pound may receive a further boost this morning as UK retail sales are expected to show a modest gain in November, rising 0.1% from the previous month after the lack of retail activity expressed by the British Retail Consortium last week.
The Dollar came under further pressure against the majors last night, falling 0.6% versus the Pound after the Federal Reserve elected to hold U.S interest rates at 5.25% for the fourth straight month as policy makers voted 10-1 in favour of no change. Although the outcome of the FOMC meeting was largely factored into the market, the Dollar declined after the release of the accompanying statement, which seemed to suggest that an interest rate cut would be likely next year. The Fed chairman, Ben Bernanke, stated that economic activity had been “mixed” in 2006 and he described the housing slump as “substantial”, which will only fuel speculation that the Open Market Committee will begin reducing interest rates next year in the face of slowing economy and reduced inflationary pressures. Earlier in the trading session, the Dollar made modest gains against both Sterling and the Euro following a report on the U.S trade balance, which showed that the deficit in goods and services actually narrowed by the most in almost five years in October. The gap in trade shrank 8.4% to $58.9 billion as the price of oil dropped and faster economic growth abroad helped propel U.S exports. The Dollar may receive a boost this afternoon following the report on U.S retail sales, which is expected to rise for the first time in three months in November.
The Euro declined against Sterling yesterday but rose 0.2% versus the Euro following a better-than-expected report on German investor confidence, which surprisingly bounced back in December from a 13-year low the previous month. The ZEW centre for Economic Research released their monthly index, which unexpectedly rose to a reading of minus 19 this month as increased investment and a significant drop in unemployment boosted sentiment in Europe’s largest economy. The report will only fuel speculation that the European Central Bank has the scope to continue raising interest rates as the German economy still has room to expand despite the introduction of the value added tax increase at the start of 2007.
The Pound made significant gains against the majors yesterday, rising 0.4% against the Euro and a further 0.5% against the Dollar following a report on the consumer price index, which showed that UK inflation has accelerated at the fastest annual rate since the series began in January 1997. Consumer prices increased 2.7% from this stage last year, which has been well above the government’s 2.0% target for the past seven months and it seems evermore likely that the Bank of England will continue to raise interest rates in the first quarter of next year. UK economic growth has accelerated at the fastest pace in two years in 2006 and combined with a substantial rise in utility bills, which have increased 11.1% since November last year, speculation will continue to intensify that the BoE will raise borrowing costs beyond the current five-year high. The Pound may receive a further boost this morning after another gauge of UK inflation may show that average hourly earnings increased to 4.0% in the 3 months to October while a separate report may show UK unemployment unchanged in November.
Data Released 13th December
UK 09:30 Average Hourly Earnings (3 months to October) UK 09:30 Claimant Count / Unemployment Rate (November)
U.S 13:30 Retail Sales (November) U.S 15:00 Business Inventories (October)
The Pound made significant gains against the Dollar yesterday, firming 0.3% by the close of trading last night in the build up to the release of the Consumer Price Index this morning, which is expected to show UK inflation running at the highest level in nine years for the month of November. Consumer prices are widely expected to have increased by 2.6% year-on-year last month, which is the most since the index was introduced in 1997 and shows heightened inflationary concerns despite the Bank of England’s decision to lift interest rates to 5.0% this year. UK economic growth has accelerated at the fastest pace in two years in 2006 and combined with rising utility bills and the sustained growth in UK house prices, it seems evermore likely that the Bank of England will continue raising rates over the coming months. The Pound also received a boost yesterday as producer output prices remained firm in the index for November after falling for two consecutive months and it seems the Pound’s dramatic appreciation against the Dollar this year is obviously weighing heavily on UK exports.
The Euro made further gains against the majors yesterday, increasing 0.4% against the Dollar and a modest 0.1% versus the Pound despite a distinct lack of economic data released in the Euro-zone. The single currency may also receive a boost this morning following the release of the ZEW survey for investor confidence, which is expected to recover from a 13-year low in November, suggesting that the German economy will continue to show signs of growth despite the introduction of the impending sales-tax increase next year. The ZEW index would correlate with a separate report on German business confidence over the same period, which unexpectedly rose to a 15-year high in November following a significant rise in exports.
Following the surprisingly positive report on U.S nonfarm payrolls last week, the Dollar has been making steady gains against Sterling but comments from the former Federal Reserve chairman, Alan Greenspan, sparked renewed dollar selling yesterday as he stated that weakness in the U.S currency could extend for a number of years. In addition, it became clear that several oil producing nations have cut their dollar exposure to the lowest level in two years in 2006 following the release of the quarterly review from the Bank for International Settlements. The focus today will fall heavily on the FOMC rate announcement this evening where Fed policy makers are widely expected to leave U.S interest rates unchanged in December. However, the market will be paying closer attention to the accompanying statement where the chairman, Ben Bernanke, may signal that the U.S economy hasn’t slowed to the extent, which would diminish the risk of higher inflation. Elsewhere, the Dollar may receive a further boost as a report on the U.S trade balance is expected to show that the deficit in goods and services actually narrowed in October, which correlates with a significant drop in oil prices over the same period.
Following on from last week, the Dollar managed to claw back some gains against the majors on Friday after falling to lowest level versus the Pound in 14-years earlier in the week. The Dollar rallied following a better-than-expected report on nonfarm payrolls, which showed that the U.S economy added more new jobs than anticipated in November although the unemployment rate did rise to 4.5% from 4.4% the previous month. In addition, a separate report on consumer confidence showed that sentiment in the Michigan area increased by more than expected in the preliminary estimate for December, which shows that despite higher interest rates and a downturn in economic growth, confidence continues to show signs of growth. The focus this week will fall on the FOMC rate announcement tomorrow evening and the Federal Reserve are widely expected to keep interest rates on hold this month. However, a number of Fed officials including the chairman, Ben Bernanke have all reiterated increased inflationary pressures over the past few weeks and therefore, the Fed may retain a tightening bias despite the evident slowdown in economic activity over the past month.
The Euro held firm against the Pound last week after the ECB elected to raise European interest rates for the sixth time this year on Thursday and although the tone of the accompanying press conference didn’t give a clear indication towards future monetary policy, the Central Bank are still expected to continue raising rates into the New Year. The Euro has climbed to the highest level against the Dollar in almost two years in the last week but the single currency has come under a bit of pressure this morning as French industrial production unexpectedly fell in October, which correlates with a slowdown in economic growth over the same period. There is a distinct lack of economic reports released in the Euro-zone this week with the focus falling on the harmonised consumer price index, which may confirm upward inflationary pressures while the ZEW survey for economic sentiment is expected to show a modest decline this month.
The Pound peaked against the Dollar last week and the market has since found support around 1.9550 as we enter a pivotal week in terms of UK economic data. Sterling may receive a boost this morning as a report on producer prices may show that UK inflation has accelerated to highest rate in over nine years in the last month despite the Bank of England’s decision to lift UK interest rates to 5.0% in November. A significant rise in utility bills has hampered consumer confidence this quarter, which was all too evident in the report on retail sales by the British Retail Consortium last week. Faster economic growth, a buoyant housing market and higher utility bills have kept inflation well above the BoE’s 2.0% target for the past six months and if the report comes put in line with expectations, speculation will continue to mount that the MPC will lift rates further over the coming months.
Data Released 11th December
UK 09:30 Producer Price Index (November) UK 09:30 Global Trade Balance (October) – Ex EU UK 09:30 DCLG House Prices (October)
The Euro failed to make any significant gains against the majors yesterday, falling flat versus the Dollar and climbing just 0.2% against the Pound despite the ECB’s decision to lift European interest rates for the sixth time this year. However, it was well factored into the market that policymakers would lift rates by a further quarter-point to 3.5% and it was the accompanying statement that would take centre stage as we looked for direction on future monetary policy. In the aftermath of the announcement, the chairman of the Central Bank, Jean-Claude Trichet, failed to strike the sort of hawkish tone that was anticipated and the language used seemed to suggest that the ECB will monitor price pressures over the coming months, adopting a ‘wait and see’ policy. Although, Trichet also highlighted that the current interest rate is still at a relatively low level, which has fuelled speculation that the ECB will continue raising interest rates in the first quarter of next year. The Euro fell flat in the aftermath of his comments but this morning the single currency may receive a boost as German industrial production is widely expected to increase by 0.5% from September.
The Pound came under increased pressure yesterday, dropping 0.2% against the Dollar and the Euro as the Bank of England kept interest rates at 5.0% in December while we await the release of the minutes of the meeting to gain an insight into future policy. It was widely anticipated that the MPC would keep rates on hold this month but the Pound has continued to come under pressure this week amid speculation that UK interest rates will remain at 5.0% over the coming months following a dramatic slump in consumer spending. Sterling slumped to the lowest level against the Euro in more than a week despite yet another strong report on the UK housing market. The Halifax index showed that house prices rose at their fastest pace since March 2005 last month despite interest rates being at the highest level in five years.
The Dollar has managed to consolidate against Sterling this week after falling to the lowest level since September 1992 following a barrage of weak economic reports and increased speculation that the Federal Reserve would begin cutting U.S interest rates next year. However, the Dollar may come under some intense pressure this afternoon as we await the release of the monthly U.S job report, which is expected to confirm that growth held near the one-year low in November. In addition, the unemployment rate may edge up to 4.5% from 4.4% in October, which reflects the overall slowdown of the U.S economy. Although it is an increasingly difficult figure to predict, the consensus is that the economy added 100,000 workers to payrolls last month and with economic growth largely dependent on a robust labour market, anything below that figure will surely put the Dollar under further pressure.
The Pound declined for the second day in succession yesterday as UK factory production unexpectedly fell in October, primarily due to a strong Pound, which is obviously having a negative impact on UK exports. Manufacturing output dropped 0.4% from September despite expectations of a more modest increase on the month and a separate report from the Chartered Institute of Purchasing & Supply showed that factory growth slowed to the weakest pace in eight months. Sterling also failed to make any real gains against the majors in light of the Chancellor’s pre-budget report where Gordon Brown predicted faster economic growth in Britain next year and increased spending on schools, pensioners and children. As widely expected, Brown raised his growth forecasts, predicting that the economy could expand as much as 3.25% in 2007 from the revised 2.75% this year. The focus today will fall on the Bank of England interest rate announcement at midday where the monetary policy committee including the governor, Mervyn King, are expected to leave rates on hold at 5.0% in December.
The Dollar continued to consolidate against the Pound as we edge closer to the support level under 1.9600 despite the apparent lack of any fundamental data released although it can be argued that the market is gearing up for the release of the monthly U.S job report this Friday. However, the Dollar may come under pressure this afternoon as the weekly jobless report may show a further increase in the number of people out of work and claiming benefits, which came in at 357,000 the previous week.
The Euro continued to hold firm against the Pound yesterday despite a worse-than-expected report on German factory orders, which surprisingly dropped for a second month in October. Orders fell 1.1% from the previous month and it seems the strength of the single currency combined with the collapse of the Dollar will surely weigh heavily on European exports as investors sought cheaper alternatives from the States. The report is in stark contrast to previous figures showing that the German economy is heading for its best performance in six years as business confidence continues to rise and retail sales increased by the most since May. The focus today will fall squarely on the ECB interest rate announcement at midday and it is widely expected that policy makers will lift rates for the sixth time this year in December. However, that eventuality is already well factored in to market movement but the Euro may receive a boost from the accompanying press conference where the chairman, Jean-Claude Trichet, may reiterate his vigilant stance towards inflation and therefore signalling a further tightening of rates over the coming months.
Data Released 7th December
UK 12:00 BoE Interest Rate Announcement
EU 12:45 ECB Interest Rates Announcement EU 13:30 ECB Press Conference & Economic Forecasts
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