The Dollar failed to make any gains against the majors yesterday, dropping 0.1% versus the Pound and remaining relatively unchanged against the Euro despite a particularly positive report on U.S consumer sentiment. The Conference Board measure of consumer confidence reached the highest level in nearly five years this month as increased spending was propelled by the strong expansion of the U.S labour market and rising personal income. The index rose to a reading of 110.3 in January, the highest level since May 2002, and it seems increasingly likely that consumer spending will continue to support economic growth in the wake of the biggest housing slump in 17-years. The is a host of significant economic data released this afternoon in the States with the advanced estimate of U.S gross domestic product taking centre stage and it is widely anticipated that the economy expanded 3.0% in the fourth quarter led by increased spending as fuel prices dropped and wages rose. The Dollar has managed to claw back the recent gains made against Sterling overnight as we fall back through the major support level at 1.9600 and without doubt the focus this evening will fall on the FOMC rate announcement. The Federal Reserve are widely expected to hold interest rates steady at 5.25% but the tone and language used in the accompanying statement will be heavily scrutinized for an insight into future policy.
The Pound rose modestly against both the Euro and the Dollar yesterday, firming an additional 0.1% by the close of trading last night following a report from Nationwide, which showed that UK house prices had advanced 0.3% in January. However, the projected rise in prices was under expectations and combined with the slight drop in mortgage approvals over the same period, there is evidence to suggest that growth in the UK housing market may of peaked. The Bank of England have raised interest rates by 75 basis points since last August and with house prices increasing by the smallest amount since May, it seems evermore likely that higher mortgage rates are beginning to weigh heavily on the housing market. The Pound has come under sustained pressure against the majors overnight and that trend may continue this morning as UK consumer confidence is expected to fall modestly in the figures for January.
The Euro managed to hold firm against the Dollar yesterday and has advanced against Sterling overnight despite a surprisingly negative report on European retail sales, which dropped for the first time in 10-months in January. The index fell to an annual rate of 47.9, the lowest since February last year following the introduction of the value-added tax increase, which is obviously beginning to weigh heavily on German consumer sentiment. However, the Euro has found some support this morning as a separate report showed that German unemployment fell to the lowest level in five years in January as the fastest economic growth since 2000 encouraged companies to step up hiring. The jobless rate fell to 9.5% from 9.8% in December, the lowest level since 2002, and the report will perhaps provide an insight into the European unemployment gauge later this morning, which is expected to remain unchanged at 7.6%. There is a host of significant data released in the Euro-zone this morning with the focus falling on the flash estimate consumer price index, which is expected to show that inflation rose above the ECB’s 2.0% target, which may prompt further speculation of a rise in European interest rates.
The Pound continued to slip against the Euro yesterday and remained relatively unchanged versus the Dollar despite a surprisingly positive report from Hometrack plc, which showed that UK house price inflation had reached the fastest pace in over three years in January. However, the Pound has rebounded sharply overnight as a separate gauge on the UK housing market showed that prices jumped higher than the anticipated 0.8% this month and that will only fuel speculation of a further rise in interest rates in March. Overnight, the Pound has bounced back above the significant support level at 1.9600 against the Dollar and that trend may continue this morning following a report on UK mortgage approvals, which are expected to remain at an elevated level for December.
The Euro managed to hold firm against the Dollar yesterday and made modest gains versus the Pound despite the apparent lack of any economic data released in the Euro-zone. That trend is set to continue this morning with the focus this week falling on the Flash estimate for consumer prices tomorrow, which may show inflation back above the ECB’s 2.0% target as the introduction of the VAT increase in Germany takes effect. If the report comes out ahead of expectations then the possibility of further rise in European interest rates will look increasingly likely in March as policy makers continue to monitor developments to price stability. The single currency may also find support later this week with the release of the Purchasing Manager’s index on European manufacturing, which together with the EC sentiment surveys are expected to show strong growth over the past month.
The Dollar managed to consolidate the recent gains made against both the Euro and the Pound yesterday ahead of a significant week in terms of economic data. Following a substantial rise in durable goods orders and new home sales last Friday, the positive sentiment surrounding the Dollar may continue this afternoon as U.S consumer confidence is expected to rise to the highest level in over four years this month. Following a well publicised slump in the U.S housing market and a slowdown in manufacturing, consumer confidence and retail sales have been one of the principle drivers of economic growth led by the buoyant expansion of the U.S labour market. The Conference Board’s index may rise to the highest reading since May 2002 in January but that is not expected to prompt the Federal Reserve to raise U.S interest rates in their monthly announcement tomorrow.
Following on from last week, the Dollar continued to rally against the majors, gaining a further 0.3% versus the Euro and dropping through the major support level at 1.9600 against the Pound following yet another band of positive economic data. A report from the Commerce department showed that the sales of new homes rose by more than anticipated in December, which will only further speculation of a rebound in the housing market following the biggest slump in more than 17-years. The significance of the report will rekindle concerns that the Federal Reserve have the capacity to raise U.S interest rates over the coming months after adopting a neutral stance earlier this month. Therefore, the focus this week will fall heavily on the FOMC rate announcement on Wednesday and although rates are expected to stay unchanged at 5.25%, the tone and language used in the accompanying statement will be heavily scrutinized. Elsewhere, the Dollar may continue to rise against the majors ahead of the monthly U.S job report this Friday as it is widely anticipated that the economy added 145,000 jobs to payrolls in January with unemployment unchanged at 4.5%.
Over the past week, the Euro managed to hold steady against the Pound after falling to a fresh four-year low on Tuesday but continued to decline against the Dollar following a distinct lack of economic data released in the Euro-zone. Although, the single currency failed to make any gains on Friday despite a report showing that money-supply growth into the Euro-region accelerated at the fastest pace in almost 17-years, which signals persistent inflation concerns that may force the ECB to continue raising interest rates. Therefore, the focus this week in terms of economic data will be the initial estimate for Euro-zone inflation, which is widely expected to rise back above the 2.0% target year-on-year in January as the VAT increase in Germany has a negative impact. As a result, the Euro may make some gains against the majors as the chances rise of a further rate increase in March.
The Pound rose to the highest level against the Dollar since September 1992 last week and also achieved a fresh four-high versus the Euro prior to a report from the Bank of England, which showed that the committee was split 5-4 in favour of raising interest rates in January. As a result of the indecision within the MPC, Sterling fell considerably against the Dollar as the chances of a back-to-back rate increase in February was scaled back although we still anticipate a further quarter-point rise in March. There is a distinct lack of economic data released in the UK this week with the focus falling on UK mortgage approvals tomorrow, which is expected to drop to 127,000 in December as the previous rate increases from the BoE take effect. However, Sterling has failed to make any gains this morning despite a report from Hometrack, which showed that UK house-price inflation reached the fastest pace in over three years this month. Prices in the London area specifically rose 0.8% from last month while growth in the rest of the country increased 0.3%.
The Euro managed to make modest gains against the Dollar yesterday and remained unchanged versus the Pound despite of an unexpected fall in German business sentiment in January. The Ifo index was widely expected to increase to a record level for the second month in succession but confidence declined on concern that the value-added tax increase would harm consumer spending and therefore weigh on economic growth in Europe’s largest economy. However, despite the minor drop in the sentiment index, a reading above 96 indicates growth and there is strong evidence that the German economy will continue to expand this year. As a result, the Euro managed to claw back some gains against the Dollar and the single currency may receive a further boost this morning as the 3 month moving average for M3 money supply into the Euro-zone is expected to increase to 9.1% from 8.8% in November.
The Pound managed to find some support yesterday after the volatile slide on Wednesday following the release of the minutes from the BoE’s last policy meeting, which has seen interest rate expectations scale back from a projected rise in February. However, with inflation still running well above target, any economic reports that show a rise in wage growth or consumer prices will rekindle speculation that interest rates can rise again next month. At the close of trading last night, the Pound was 0.2% higher against the Dollar but overnight we have traded back towards the significant support level at 1.9600 and if breached, Sterling may fall all the way back towards 1.9465.
The Dollar came under a modest amount of pressure yesterday as a report on the U.S housing market came in slightly under expectations as the sales of existing homes declined for the first time in three months. The slump in the housing sector, which has heavily weighed on U.S economic growth, has showed signs of bottoming out in recent months but the report yesterday capped the biggest annual drop in sales since 1989. Sales dropped 0.8% on the month in December while falling 8.4% in 2006 after the Federal Reserve raised interest rates 17-times over a two year period. Elsewhere, a separate report from the labour department showed that the number of initial claims in the past week rose 36,000. However, the Dollar has managed to firm an additional 0.3% versus the Pound overnight and may make further gains today ahead of a report on the sales of new homes in the States. The report is expected to show that new home sales rose for a second consecutive month, which will only provide further evidence that the housing market is improving and contribute to economic growth in the second half of 2007.
The Pound declined heavily against the majors yesterday, falling 0.8% versus the Dollar after a achieving a fresh 14-year high earlier in the week and we closed last night 0.3% lower against the Euro following a surprisingly dovish report from the Bank of England. The catalyst for the decline in Sterling began on Tuesday afternoon when the governor of the BoE, Mervyn King, publicly declared that UK inflation was expected to fall quite sharply in the second half of the year, which suggests that interest rates may peak around 5.5%. However, following the release of the minutes from the BoE’s last policy meeting yesterday morning, the Pound fell heavily as the nine-strong committee voted 5-4 in favour of a rise in rates in January despite expectations of a unanimous decision. The so called dissenters maintained that there was insufficient evidence to warrant a rise in rates this month but with inflation running well above the 2.0% target, it seems likely that interest rates will need to rise further with the market anticipating a hike in March.
Elsewhere, The Pound failed to find support after a separate report showed that the UK economy expanded at the fastest pace in nearly three years in the fourth quarter of 2006 led by considerable growth in services and retail sales. The preliminary estimate for gross domestic product, the value of all goods and services, increased 2.9% from a year earlier, the fastest pace since 2004 as the economy expanded 0.8% from the third quarter. With the economy growing at a faster pace than anticipated and inflation well above target, it seems inevitable that the BoE will continue raising interest rates in the short-term and that should provide further support for the Pound despite yesterday’s slide.
The Euro managed to claw back some modest gains against Sterling yesterday and remained largely unchanged versus the Dollar despite the apparent lack of any economic data released in the Euro-zone or the States. However, the single currency has come under a modest amount of pressure this morning as German consumer confidence fell to the lowest level in a year on concerns that higher taxes will reduce disposable income. The gauge of confidence in Europe’s largest economy dropped to a reading 4.8 following a revised 8.5 in January despite the dramatic fall in unemployment, which currently stands at a four-year low. Nevertheless, the Euro may receive a timely boost later today as a report on German business confidence is expected to rise to a record level in January following a considerable drop in oil prices and the German stock index rising to a six-year high.
Over the past 24hrs, the Dollar has made significant gains against Sterling despite the distinct lack of fundamental data released this week. However, there is some key economic reports released this afternoon in the States with the focus falling on existing home sales, which may provide a further indication of a rebound in the housing market. The slump in the housing sector has been one of the main catalysts for a slowdown in economic growth in the States following the Federal Reserve’s aggressive monetary tightening cycle over the past two years. The Dollar rose last week as a report on housing starts showed that builders had started work on more new homes than anticipated and if existing home sales rises above forecasts today, we can expect the Dollar to make further gains against the majors.
The Pound surged forward yesterday, rising to the highest level since September 1992 against the Dollar and rose to a fresh 4-year high versus the Euro following an industry report, which showed that UK factory-gate prices increased to a 12-year high in January. As a result, Sterling soared to the highest level against the majors since it was ejected from the European Exchange Rate Mechanism over 14-years ago. However, by the close of trading last night, the Pound had relinquished much of the earlier gains and fell significantly against the Dollar and the Euro overnight as we eagerly await the release of the minutes from the BoE’s last policy meeting. The report is expected to show that the monetary policy committee voted unanimously to raise interest rates this month but the minutes should provide an insight into the chances of a further rate hike in February. Elsewhere, Sterling may find further support as a separate government report may show UK economic growth matched a two-year high in the fourth quarter of 2006 following sustained growth in the UK service sector and a rebound in consumer spending.
The recent lacklustre performance of the U.S dollar continued yesterday following a distinct lack of U.S economic data to support the currency and that trend may continue until Thursday with the release of key housing data and durable goods orders. The Dollar dropped to a fresh 14-year low against Sterling before a retracement back under 1.9800 overnight but it does seem increasingly likely that we will launch another assault on the $2 level over the coming weeks.
The Euro has come under increased pressure against the majors in recent weeks following a shift in the tone and language used by the ECB with regards a further tightening of European interest rates. However, the single currency received a much needed boost yesterday as an industry report showed robust growth in industrial orders for the month of November, which will only increase the chances of a further quarter-point rate increase next month. Orders came in slightly higher than the anticipated 1.2% and as a result, the Euro reversed earlier losses against the Pound to finish the session 0.1% higher while the single currency also rose 0.6% versus the Dollar by the close of trading last night.
The positive sentiment surrounding the Pound continued yesterday as the Rightmove survey showed that UK house prices rose 0.5% in January while the annual rate was up 13% from this stage last year, which is the fastest growth since October 2004. Despite a further tightening of UK interest rates it seems the sustained and unrelenting growth in the property market will continue this year and that will lead to increased speculation that interest rates will rise beyond the current 5.25%. As a result, the Pound advanced 0.4% against the Dollar to open this morning above 1.9800 and we also achieved a fresh two and a half year high versus the Euro by the close of trading last night. In terms of economic data, Sterling may receive a further boost this morning as the Confederation of British Industry releases their monthly survey, which is expected to show further growth in production and manufacturing output.
The Euro has come under increased pressure over the past few weeks and that trend continued yesterday following a report on German producer price inflation, which unexpectedly declined in December following a significant drop in energy prices over the same period. With price pressures seemingly on the retreat, the chances of a further rise in European interest rates continue to decline with the ECB monitoring the threats to price stability over the next month. The Euro has fallen to a near three year low versus the Pound almost on a daily basis over the past week but a report this morning may provide some respite as industrial orders are expected to rise 1.2% in November.
Following a distinct lack of economic data released in the States until Thursday, the Dollar has continued to decline against the majors as the market eagerly awaits further evidence of a rebound in the U.S housing market ahead of the FOMC rate announcement next week. Prior to a band of positive economic reports, it was widely anticipated that the Federal Reserve would begin cutting U.S interest rates in the first quarter of the year. However, with strong growth in consumer spending and a rebound in manufacturing providing support, the Fed have adopted a neutral stance on monetary policy and we expect interest rates to remain unchanged at 5.25% for the first half of the year.
Following on from last week, the Pound continued to rise against the majors, achieving a new two and a half year high versus the Euro and consolidating the recent gains against the Dollar as UK retail sales rose the highest level in 18 months. Faster economic growth and a significant rise in personal income sent sales rising 1.1% in December, the most since June 2005 while the core rate soared 3.7% from a year earlier. The report will only fuel further speculation that consumer spending will remain relatively positive despite three quarter-point rate increases since August last year. The focus this week in terms of economic data will fall heavily on the minutes from the Bank of England’s last policy meeting where the MPC surprisingly elected to lift interest rates to 5.25%. It is widely anticipated that the eight-strong committee unanimously voted to hike rates in January but the tone and language of the report will be heavily scrutinized for any indication of a further rise in interest rates in February or March. The Pound has made gains against the majors this morning as the Rightmove survey showed that UK house prices rose 0.5% in January and it seems that two quarter-point rate increases last year has done little to dampen demand.
The Euro continued to decline against the majors last week as Euro-zone inflation remained unchanged at 1.9%, which further underlines the rather dovish rhetoric from the European Central Bank with regards a further tightening of European interest rates. The single currency may come under further pressure this week following a sparse supply of economic data released in the Euro region with the focus falling on the German Ifo index into business confidence. The index is expected to rise modestly in January as fears over the impact of the value-added tax increase continue to ease although German inflation may rise considerably in the meantime. However, a gauge of producer price inflation has already been released this morning and prices for December have slowed following a significant drop in energy prices over the same period.
The Dollar ended the week on a positive note, firming an additional 0.3% against the Euro as U.S consumer confidence rose to a three-year high in the preliminary estimate for January. A significant drop in energy prices and a strengthening labour market pushed wages higher, which has obviously had a positive effect on confidence and retail sales that should prevent the U.S economy from a ‘hard landing’ this year. There is a distinct lack of fundamental data released in the States this week with the focus falling on the housing sector. In the past week, speculation has continued to mount that the sustained slump in the housing market has finally peaked and therefore, existing and new home sales will be watched closely for a further indication of a rebound in the sector.
Initially, the Dollar managed to make significant gains against both the Euro and the Pound yesterday but by the close of trading last night, the Dollar was only 0.1% higher against the single currency following a rumour that a U.S warship had been struck by an Iranian missile in the Arabian Gulf. There was a barrage of positive economic data released in the States yesterday that gave a boost to Dollar sentiment as U.S consumer prices accelerated for the first time in four months in December. The index increased 0.5%, the most since April last year, suggesting that inflationary pressures still remain and provides a further indication that the Federal Reserve will keep interest rates on hold over the coming months. Elsewhere, a separate report from the Commerce Department on the U.S housing market showed that the economy is rebounding from last year’s slowdown as home starts unexpectedly rose 4.5% in December. In addition, the weekly jobless report showed that first time claims fell to an 11-month low in the week ending 13th January while manufacturing in the Philadelphia region showed signs of growth.
The Euro managed to claw back some modest gains against the Dollar last night but fell to a fresh two and a half year low versus the Pound following a distinct lack of fundamental data released in the Euro-zone. The sole release came in the shape of the ECB monthly bulletin, which largely reiterated the negative sentiment regarding future monetary policy that was expressed by the chairman, Jean-Claude Trichet last week after the ECB kept interest rates on hold at 3.5%. The tone and language used by Trichet and several other policy makers seems to have shifted away from the anticipated hike in rates next month as the Central Bank continues to monitor risks to price stability.
Sterling managed to make further gains yesterday, firming an additional 0.2% against the Dollar and climbed to the highest level versus the Euro since August 2004 despite the obvious lack of any economic data. Therefore, it seems the surprise rate increase by the Bank of England last week is still providing a boost to Sterling sentiment and the inflation report on Monday has only served to increase speculation that rates will go to 5.5% by March. The Pound may trade higher this morning following a report on UK retail sales, which is expected to rise for a third consecutive month in December as consumers stepped up spending ahead of the Christmas period.
The Pound continued to climb higher yesterday, jumping to a fresh two and a half year high against the Euro and increased a further 0.4% versus the Dollar following a particularly positive report on the UK labour market. Unemployment claims fell by more than expected in December, falling towards a nine-month low following a significant expansion in UK service industries. The number of Britons out of work and claiming benefits fell 5,500 on the month to an annual 943,100, the lowest level since March last year while the unemployment rate stayed unchanged at 3.0%. A swelling workforce will undoubtedly lead to higher wage demands and that has prompted further speculation that the Bank of England will need to raise interest rates again in February or March. A separate report yesterday showed that the average hourly earnings rose 4.1% in the three months to November, which was largely unchanged from the previous quarter and was slightly below the forecasted rise to 4.2%.
The Euro remained largely unchanged against the Dollar yesterday but fell a further 0.3% versus the Pound despite a round a positive economic reports, which showed that Europe’s trade surplus widened in November. As lower oil prices and a strong Euro reduced the cost of energy, the surplus grew to €4.5 Billion from a revised €2.4 Billion the previous month with exports rising 1.7%. Elsewhere, the Euro continued to decline as a separate report on consumer prices showed that Euro-zone inflation came in unchanged at 1.9% in December. The preliminary estimate held below the ECB’s 2.0% target for the fourth month in succession while the core rate came in slightly under expectations at 1.5%. Therefore, the inflation numbers yesterday provide an insight into the reasons behind the shift in tone from the ECB and perhaps explains why Euro-zone interest rates may stay unchanged at 3.5% next month.
The Dollar held firm against the Euro yesterday but by the close of trading last night had slipped back towards 1.9700 versus the Pound following a string of economic data released in the States. Firstly, a report on producer prices showed that a gauge of inflation had risen by more than expected in December, reflecting higher petrol prices over the same period. However, the price of crude oil has dipped 20% since mid-November and therefore, the report yesterday will only fuel speculation that interest rates will remain on hold as prices continue to ease. Elsewhere, the Dollar also failed to capitalise following a positive report on industrial production, which rose by more than expected in December and may provide an indication of a rebound in U.S manufacturing following greater demand at home and overseas. The focus today in terms of economic data will fall on the release of the consumer price index for December, which is expected to show that prices rose 0.4%, the highest month-on-month increase since July. The report is also expected to show inflation running at 2.6% at the end of 2006, which is the biggest gain in five years and will keep the Federal Reserve on alert to monitor the continued threats to price stability.
Data Released 18th January
EU 09:00 ECB Monthly Bulletin
U.S 13:30 Consumer Price Index (December) U.S 13:30 Housing Starts (December) U.S 13:30 Initial Jobless Claims (w/e 13th January) U.S 15:00 Leading Indicators (December) U.S 17:00 Philly Fed Index (January)
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