The Pound came under sustained pressure against the majors yesterday, dropping 0.6% versus the Dollar and more significantly a further 0.7% against the Euro as we fall back towards the major support level just above 1.4975. Sterling declined heavily following the Bank of England interest rate announcement where the monetary policy committee elected to hold interest rates at 5.25% following a surprise increase in January. Although the decision to keep rates unchanged was widely anticipated, there were suggestions that policy makers would lift rates back-to-back in February to stem the threat of rising inflation. However, growth in the UK service sector, which accounts for the largest proportion of economic growth, slowed in January while recent reports have also provided evidence of a moderate slowdown in housing. Therefore, the nine-strong committee will wait to see the effects of previous rate increases before another probable move by April. The Pound came under increased pressure as speculation builds that UK interest rates may of peaked at 5.25% and therefore, the CPI figures released next week will take on added significance in order to ascertain if inflation has scaled back through 3.0%. The Pound may be given a reprieve this morning following the release of the UK trade balance, which is expected to show that deficit in goods and services narrowed from £7.2 Billion in December.
The Dollar managed to make modest gains against the Euro yesterday and firmed up a further 0.6% versus the Pound after a report on initial jobless claims gave further indication of healthy growth in the U.S labour market. The number of Americans filing for first time claims rose just 3,000 over the past week to an annual rate of 311,000 with the unemployment rate staying near a six-month low. Elsewhere, a separate report from the Commerce department showed that Wholesale Inventories rose 0.5% in December after a 1.3% increase the previous month.
The Euro rallied strongly against the Pound yesterday as the European Central Bank also kept interest rates steady at 3.5% but gave a strong hint that rates are set to rise by a further quarter-point in March. It was widely anticipated that policy makers would keep rates unchanged this month after a particularly dovish rhetoric from the chairman, Jean-Claude Trichet, in last month’s meeting. However, in the accompanying press conference yesterday, Trichet used his trigger words to the market to announce a rate increase next month saying, “strong vigilance remains of the essence to ensure that risks to price stability do not materialise.” In each of the last six rate increases since late 2005, the chairman has utilised the exact same terminology to give notice that the Central Bank intend to lift rates the following month and as a result, the Euro made rapid gains against Sterling as we enter a downward trend.
The Pound came under pressure against the majors yesterday, falling modestly versus the Dollar and by the close of trading last night had fallen 0.4% against the Euro following a worse-than-expected report on UK factory production. Industrial output slipped 0.1% in December after gaining a revised 0.4% the previous month but the gauge of manufacturing increased for a second month in succession. The significance of the report shows that growth in manufacturing will continue despite the dramatic appreciation of the Pound since August combined with an aggressive tightening of UK interest rates over the same period. The focus today will fall heavily on the Bank of England interest rate announcement at midday and although the consensus forecast suggests a no change in policy this month, we can’t dispel the possibility of a further quarter point increase with inflation still well above target. The Monetary Policy Committee was split 5-4 in favour of a rise in rates in January and it is widely anticipated that policy makers will wait to assess the impact of previous rate increases before rising again in March.
The Euro managed to continue making gains yesterday, firming an additional 0.3% against the Dollar and also rose versus the Pound despite a surprisingly negative report on the German industrial sector. Industrial production unexpectedly slipped to a seasonally adjusted 0.5% in December ahead of the sales-tax increase, which threatens to weigh heavily on consumer sentiment. However, the Euro managed to make further gains against both the Euro and the Dollar as we build up to the ECB interest rate announcement this afternoon. Following a particularly dovish rhetoric from the chairman, Jean-Claude Trichet, in last month’s press conference we don’t expect the Central Bank to raise rates this month. However, the tone and language used in the accompanying statement will be heavily scrutinized for clues on future policy and if Trichet uses his trigger words, “strong vigilance” in order to ensure price stability, it will look very likely that rates will rise in March and that should provide some support to the Euro.
The Dollar managed to claw back modest gains against Sterling yesterday following a report on U.S productivity, which unexpectedly accelerated at the fastest rate in nearly a year in the preliminary estimate for the fourth quarter. However, a separate gauge of the report showed that unit labour costs rose at a much slower pace than anticipated, which provides further speculation that a slowdown in wage growth will continue to tame inflation. The rebound in economic growth combined with seemingly moderating inflationary pressures makes it easier for the chairman of the Federal Reserve, Ben Bernanke, to keep U.S interest rates unchanged over the coming months. However, yesterday a member of the Federal Reserve Bank of Philadelphia, Charles Plosser, indicated that the recent pick-up in economic growth increases the risk that inflation won’t moderate and therefore, U.S interest rates will have to increase from the current 5.25%.
Data Released 8th February
UK 12:00 Bank of England Interest Rate Announcement
EU 12:45 European Central Bank Interest Rates Announcement
Sterling advanced against the majors, firming an additional 0.5% versus the U.S Dollar and by the close of trading last night increased 0.2% against the Euro following the report from the British Retail Consortium, which showed that strong consumer spending continued after the Xmas period. The annual growth rate in like-for-like sales increased beyond expectations with values rising 3.1% in January and the report provides further evidence that consumers will be able to supplement higher interest rates and carry on spending. Therefore, it seems increasingly likely that the MPC will continue monetary tightening over the coming months and although we anticipate a ‘no change’ in policy this Thursday, there is always the outside chance the BoE will hike rates early with inflation expected to rise further over the past month. The Pound may continue to make gains against both the Euro and the Dollar this morning as a report on the UK industrial sector is expected to show a further rise in production and manufacturing output in December.
The Euro managed to remain firm against the Dollar yesterday, rising a modest 0.3% on the session despite a worse-than-expected report on European retail sales and a drop in German factory orders. Previous reports have shown that consumer spending remained relatively robust over the Xmas period as shoppers stepped up spending ahead of the introduction of the German VAT increase at the start of 2007. As a result, the Euro declined against the Pound but may receive a timely boost this morning as German industrial production is expected to rise 0.5% in December despite the surprising drop in orders over the same period.
The Dollar came under further pressure against both the Euro and the Pound yesterday following a distinct lack of economic data released in the States this week. However, the U.S currency may receive a much needed boost this afternoon as nonfarm productivity probably accelerated in the preliminary estimate for the fourth quarter with expectations of a 1.1% rise from the previous quarter. However, a separate gauge on the report may show that labour costs accelerated at a slower pace, which suggests that wage growth may have moderated and therefore reduced the threat of inflation. As a result, recent comments from the Federal Reserve over a rebound in economic growth combined with lower inflation will look increasingly likely, which will make it easier for policy makers to keep interest rates on hold.
The Pound declined against the majors yesterday, falling 0.3% versus the Dollar and dropping modestly versus the Euro following a worse-than-expected report on the UK service sector. Growth in services, which accounts for the largest proportion of economic growth, moderated from a 10-year high in January after the BoE raised interest rates three times since August. The CIPS purchasing managers’ survey came out at a reading of 59.2 after rising to 60.6 in December and the report will fuel speculation that growth in the sector may of peaked with interest rates currently running at a five-year high. Nevertheless, any Sterling losses were short-lived and overnight we have advanced against both the Euro and the Dollar following a report from the British Retail Consortium. The survey showed that UK retail sales increased at the fastest pace in six months in January, rising at an annual rate of 3.1% after gaining 2.5% in December. The report will only provide further evidence that consumers will be able to supplement higher interest rates and with inflation reaching the fastest pace in a decade, it seems increasingly likely that rates will continue to rise over the coming months.
The Dollar received an unexpected boost yesterday as growth in U.S service industries accelerated faster than anticipated in January with the headline measure reaching the highest level since May last year. The Institute of Supply and Management released their monthly index, which showed that growth in non-manufacturing companies rose to a reading of 59.0 in January with a figure above 50 indicating expansion. The U.S service sector accounts for the largest proportion of economic growth and combined with lower energy prices and higher wages it seems the U.S economy will continue to expand at a ‘moderate’ pace this year, predominantly fuelled by consumer spending.
The Euro found some support yesterday, firming 0.4% against the Dollar and remaining firm versus the Pound after a report showed that European service industries unexpectedly expanded in January after unemployment in the Euro-zone fell to the lowest level on record. The Purchasing Managers’ Index rose to a reading of 57.9 from 57.2 in December and the report suggests that growth in the sector will continue to rebound from a slowdown at the start of the year. In addition, Services growth accelerated in Germany, Italy and France in January and a separate gauge of business expectations also jumped to a reading of 67.8 from 65.3 the previous month. Although, economic growth is expected to moderate in the second half of the year, the report yesterday will only fuel further speculation that European interest rates are set to rise in March. The Euro may make further gains against the majors this morning following a report on retail sales, which is widely expected to increase 1.0% in December while also rising to an annual rate of 2.3%, as consumers stepped up spending before the VAT increase at the start of the year.
Following on from last week, the Dollar came under a modest amount of pressure on Friday following the release of the monthly U.S job report, which showed that the economy added 111,000 workers to payrolls in January while the unemployment rate unexpectedly rose. The jobless rate increased to 4.6% and slower growth in the U.S labour market combined with moderating wage pressures lessens the risks to higher inflation, which in turn leads to speculation that the Federal Reserve can hold rates over the coming months. There is a fundamental lack of economic data released in the States this week with the focus falling on the ISM Services report, which is expected to show a modest improvement following the surprise downside move the previous month. Therefore, the Dollar may receive a timely boost this afternoon as the index is expected to rise to a reading of 57.0 from 56.7 in December. While elsewhere, the chairman of the Federal Reserve, Ben Bernanke, is scheduled to speak at a conference this afternoon and his comments will be watched closely for any further insights into monetary policy.
The Euro declined heavily against the Pound towards the end of last week as the Flash estimate for consumer prices showed that European inflation fell under expectations in January. The index was widely expected to rise above the 2.0% target last month but with oil prices holding firm below $60 a barrel, the risks to price stability remain low as inflation came out unchanged at 1.9%. The significance of the report is that the European Central Bank are unlikely to raise interest rates this week particularly after the dovish rhetoric from the chairman, Jean-Claude Trichet, in last month’s policy meeting. The Euro may come under some pressure this morning following the Purchasing Manager’s Index on the European Service sector, which is expected to decline to a reading of 56.2 in January from 57.2 in December, although a figure above 50 indicates expansion.
The Pound managed to advance against the majors last week despite the apparent lack of economic data released in the UK as the focus fell on a report from the Bank of England, which showed a modest drop in mortgage approvals. However, the focus this week will inevitably fall on the Bank of England’s interest rate announcement this Thursday. Although we expect the MPC to leaves on hold this month, there is the increased chance that policy makers may pull another surprise and hike rates a further quarter-point in order to bring inflation back under control. In terms of economic data, the focus this week fall on the CIPS Services report this morning with growth in the sector currently running at a 10-year high and the survey is expected to remain at an elevated level in January. Growth in Services, which accounts for the largest proportion of economic growth, would of been one of the main factors in last month’s surprise rate increase and therefore, the report will be watched closely for a further insight into monetary policy.
Data Released 5th February
UK 09:30 CIPS Services Survey (January)
EU 09:00 PMI Services (January)
U.S 15:00 ISM (Non-Manufacturing) Index (January)
Every effort is made to ensure the accuracy of the information contained within this email, however TorFX cannot accept liability for damage caused by error, omission, or inaccuracies. Any opinions expressed are those of the author, and do not represent advice. Clients are wholly responsible for trading decisions.
The Dollar came under further pressure yesterday, falling an additional 0.4% against the Pound but managed to rise modestly versus the Euro by the close of trading last night following a mixed bag of U.S economic data. Initially, the Dollar tumbled following the release of the Institute of Supply & Management’s index on U.S manufacturing, which unexpectedly contracted to a reading below 50 in January as factories cut production and reduced orders. The gauge of manufacturing activity was widely expected to increase from 51.4 in December but surprisingly fell to the lowest level since April 2003, which correlates with the unexpected drop in activity in the Chicago region over the same period. However, following the initial negative reaction, the Dollar managed to climb against the Euro and traded back below 1.9700 versus the Pound as a separate report on Pending Home Sales increased the possibility of a rebound in the housing sector. The focus today will undoubtedly fall on the release of the monthly U.S job report, which is expected to show that the economy added 150,000 jobs to payrolls in January while average hourly incomes are also expected to rise. Following the positive growth in the U.S labour market over the past year, the Dollar may come under some considerable pressure this afternoon if the job report comes out under expectations.
The Euro declined against the majors yesterday, dropping modestly versus the Dollar and falling 0.4% against the Pound as a report on European manufacturing slowed for a third consecutive month in January as exports continued to drop. The Purchasing Manager’s Index dropped to a reading of 55.5, the lowest since February last year, although a figure above 50 indicates growth. The report yesterday will only add to previous evidence that economic growth will continue to slow in the Euro-zone, decelerating from the fastest pace in six years. The Euro may come under further pressure this morning following the release of Producer Price index, which is expected to show that a gauge of inflation slipped to 4.1% year-on-year in December from 4.3% the previous month.
The Pound managed to rise against the majors yesterday, consolidating the gains made in the previous session as we closed last night 0.4% higher against both the Euro and the Dollar as UK factory output unexpectedly quickened in January. The CIPS manufacturing survey rose to a reading of 52.8 in January from 52.0 the previous month and the report will only fuel further speculation of a rebound in the sector, which will surely help propel economic growth this year. In addition, the growth in manufacturing seems to be weathering the Bank of England’s decision to raise UK interest rates three times since August and the Pound’s 14% appreciation against the Dollar last year, which will obviously weight on UK exports.
Every effort is made to ensure the accuracy of the information contained within this email, however TorFX cannot accept liability for damage caused by error, omission, or inaccuracies. Any opinions expressed are those of the author, and do not represent advice. Clients are wholly responsible for trading decisions.
There was a lot of volatility in the market yesterday as the Dollar initially advanced against Sterling to trade briefly under 1.9500 following the release of the advanced estimate for economic growth in the fourth quarter of last year. The report showed that the U.S economy grew at a faster pace than anticipated, rising to an annual rate of 3.5% in the final quarter following a significant rebound in consumer spending as fuel prices continued to tumble. In the aftermath of the report, the Dollar rose against Sterling and made modest gains versus the Euro but a separate index on U.S business activity in the mid-west unexpectedly declined. The Purchasing Manager’s report on manufacturing in the Chicago region contracted for the first time since April 2003 following a sustained drop in new orders as the index plummeted to a reading of 48.8 with a figure above 50 indicating expansion. Elsewhere, the Dollar extended its losses as the Federal Reserve kept U.S interest rates at 5.25% although policy makers retained their bias towards further tightening if inflation continues to rise. The Open Market Committee voted unanimously to hold rates for the seventh consecutive month but with recent economic reports showing expansion in the labour market, strong consumer spending and a rebound in the housing sector, it seems increasingly likely that the Fed will refrain from cutting rates at least until the second half of the year.
There is a plethora of significant economic reports released in the States this afternoon with the focus falling on the personal income and expenditure report, which is expected to show further growth in wages for December and add to the current inflationary pressures. Elsewhere, the Dollar may find further support as the Institute of Supply and Management release their monthly report on U.S manufacturing, which is expected to increase to a reading of 52.0 in January from 51.4 the previous month. Following the lacklustre performance of business activity in the Chicago region, the report will take on added significance and a drop below 50 will evidently weigh on Dollar sentiment.
The Euro managed to rise significantly against the majors yesterday, firming an additional 0.4% versus the Pound and trading up through 1.3000 against the Dollar by the close of trading last night. The single currency found support as German retail sales rose above forecasts in December although the report is not representative of the current climate following the VAT increase at the start of January. Elsewhere, German unemployment fell to the lowest level in more than five years in January as strong economic growth encouraged companies to step up hiring. However, the Euro managed to consolidate the recent gains against the majors despite a separate report on European consumer prices, which showed that inflation remained below target for a fifth consecutive month. It was widely anticipated that the Flash estimate consumer price index would rise to 2.1% in January but the official figures showed that the inflation rate stayed unchanged at 1.9% as confidence offset the effect of the German tax increase.
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