The Pound has come under further pressure this week following a string of negative economic reports, which threatens to undermine the prospect of any further monetary tightening as the UK current account deficit widened to a 16-year high while economic growth was revised down in the last quarter. However, the Pound has remained largely unchanged in spite of the recent reports and yesterday received an unlikely boost as UK mortgage approvals came in higher than anticipated for February. According to a report from the Bank of England, UK mortgage lenders approved 119,000 home loans last month, which was significantly more than expected and provided an indication that demand in the property market is withstanding higher interest rates. There have been signs that growth in the housing market is slowing but a report from Nationwide yesterday showed that prices had risen for the fourteenth consecutive month in March and that may prompt the MPC to continue lifting interest rates this year. Elsewhere, Sterling managed to gain 0.1% against the Dollar after a survey from the Confederation of British Industry showed that growth in the UK retail sector was at its strongest level since December 2004. There is a distinct lack of economic data released in the UK this morning with the focus falling on the Gfk gauge of consumer confidence, which is expected to remain unchanged at a reading of -8.0 in March.
The Euro managed to make gains against the majors over the past trading session, firming 0.2% versus the Dollar and a further 0.1% against the Pound after reports in Germany showed a bigger-than-expected drop in unemployment. The jobless rate fell to 6.9% in February, which represents the lowest reading in over five years and provides a further indication that a strong labour market will be able to support economic expansion in the wake of the sales tax increase at the start of the year. The Euro may continue to make gains this morning amid a host of economic data released in the Euro-zone. Firstly, the flash estimate of European consumer prices is expected to show that inflation edged higher towards 1.9% in March, pushing towards the Central Bank’s 2.0% ceiling and any upward revisions will surely spark speculation of further monetary tightening. Elsewhere, the EC sentiment index will provide an indication of consumer and industrial confidence, which is expected to remain at an elevated level in March following the sustained fall in unemployment. Following the dramatic drop in German jobless claims this year, the European unemployment rate is expected to make new yearly lows in the figures released this morning with forecasts suggesting a fall towards 7.3%.
The Dollar failed to rebound against both the Euro and the Pound yesterday despite an upward revision in U.S economic growth in the fourth quarter. The final estimate of gross domestic product showed that the economy grew at an annual rate of 2.5% in the fourth quarter following the worst slump in housing construction in 17-years. The final revision of GDP compares with a 2.2% rate reported last month while a measure of inflation, keenly watched by the Federal Reserve, rose less than forecast. Recent reports have suggested that the slump in housing has yet to peak as the increase in subprime loan defaults and foreclosures threatens to deepen the slowdown and prevent the economy from expanding. The Dollar may receive a timely boost this afternoon following the release of the personal income and expenditure report, which represents the Federal Reserve’s preferred measure of U.S inflation. In a testimony to Congress this week, the chairman, Ben Bernanke, has reiterated that upside risks to inflation remain a concern to policy makers and the report this afternoon is expected to show that the PCE Deflator increased 0.2% in February. Elsewhere, the Purchasing Manager’s index into the current state of manufacturing in the Chicago region is expected to increase to a reading of 49.6 from 47.9 in February. While the Dollar may also rally following the release of the final estimate of the consumer sentiment in the Michigan area, which is expected to increase to a reading of 89.0 from 88.8 reported earlier this month.
Data Released 30th March
UK 10:00 Gfk Consumer Confidence (March)
EU 10:00 Flash HICP (March)
EU 10:00 EC Business Climate Index (March)
EU 10:00 EC Sentiment Index (March)
– Consumer / Industrial Confidence
EU 10:00 Unemployment Rate (February)
U.S 13:30 Personal Income / Expenditure (February)
The Pound remained largely unchanged against both the Euro and the Dollar yesterday despite a host of negative economic reports, which gave way to speculation that growth in the property market has peaked as prices fell 0.4% in March. Earlier in the session, the Pound came under increased pressure against the majors and dropped briefly below 1.9600 versus the U.S Dollar as the final estimate of UK GDP showed that economic growth was unexpectedly revised down in the fourth quarter of last year. Gross domestic product rose 0.7%, which was unchanged from the previous quarter, while the annual pace of economic expansion remained above trend growth at 3.0%. Recent reports have suggested that growth in the service sector has stagnated from previous months and that has led to further speculation that the Bank of England will continue to assess the impact of three previous rate increases before a likely move in May. Elsewhere, the Pound managed to remain relatively strong despite a separate report, which showed that the UK current account deficit widened to a record level in the fourth quarter of 2006. There is some significant economic data released in the UK this morning with the focus falling on mortgage approvals for the month of February and a separate report from the Confederation of British Industry on the distributive trades balance. Following a downward swing in house prices over the past month, it is widely anticipated that mortgage approvals fell to 118,000 last month and any revisions under that figure may weigh on Sterling sentiment.
The Euro remained relatively unchanged against the majors yesterday despite yet another round of hawkish rhetoric from a number of ECB policy makers including the chairman, Jean-Claude Trichet, who emphasised that monetary growth is vigorous while interest rates are still at an accommodative level. That sentiment was also expressed by a number of governing-council members and it seems almost certain that the Central Bank will continue raising rates above the current 3.75% in the near short-term. There was a mixed bag of economic data released yesterday as the focus fell on Euro-zone money supply with growth in the M3 remaining particularly strong and emphasised that inflationary pressures continue to mount. The Euro has already made modest gains this morning as the Purchasing Manager’s index on European retail sales rose for the first time in three months in March. Last month the European Commission raised its 2007 growth forecast for the economy to 2.4% from 2.1% and highlighted that retail growth would be a major factor in expansion this year as German consumer confidence rebounds after the imposed sales tax increase. Elsewhere, a separate report this morning has confirmed that unemployment in Germany dropped to lowest level in over five years last month.
The Dollar managed to hold firm yesterday despite rumours of a military incident involving Iran and a U.S war ship, which rattled investor confidence and sent oil hurtling towards $65 a barrel. Although it has since appeared that the alleged incident did not take the place, it emphasised the nervousness in the market and the possible implications of instability in the Middle East as oil rose for a seventh day in succession and sparked concerns of a U.S recession. The Dollar also managed to hold steady despite a report on U.S durable goods orders, which rose less than forecast in February, rising just 2.5% with orders excluding transportation declining 0.1%. However, the data was largely ignored by the market as the focus seemed to fall on a statement from the chairman of the Federal Reserve, Ben Bernanke, who said that monetary policy is still orientated towards controlling inflation despite a shift in tone from the Fed in the last FOMC announcement. His comments reflected no reference towards a cut in U.S interest rates as he stated that the Central Bank’s decision to move to a more neutral stance simply gave policy makers more room to manoeuvre. The Dollar may come under some pressure this afternoon as report on U.S economic growth may show that the economy expanded at an annual pace of 2.2% in the final quarter of 2006 as the slump in housing and business spending shows no signs of ending.
The Dollar continued to slide against the Euro yesterday but by the close of trading last night was 0.2% higher versus the Pound despite a weaker-than-expected report on U.S consumer confidence. Following a particularly soft report on retail sales and consumer sentiment earlier in the month, the Conference Board’s index into consumer confidence was widely expected to show a reading below the five-year high at 112.5 in March. The sustained slump in the U.S housing market combined with a sharp rebound in fuel prices over the past month has led to increased pessimism among the consumer that will surely lead to an imminent rate cut by the Federal Reserve. The index fell more than anticipated yesterday to a reading of 107.2 with the only positive note coming from the labour market component of the report, which rose to the highest level since August 2001. However, the overall theme of the data was negative for the U.S economy and as a result, the Dollar continues to slide against the Euro. In terms of economic reports, the focus today will fall on durable goods orders for the month of February and initial forecasts suggests that orders probably rose after falling by the most in six years the previous month.
The Euro made widespread gains against the majors yesterday, rising 0.2% versus the Dollar and rebounded 0.3% against the Pound following a surprisingly positive report on German business confidence. The Ifo business climate index rose to a reading of 107.7 in March and the report will provide a further indication that Europe’s largest economy will be able to sustain growth in the wake of the value-added tax increase and can supplement the economic slowdown in the States. German economic growth accelerated to the fastest pace in six years in 2006 and it seems the economy will continue to expand as companies increase hiring and investment. The Euro rose modestly against both the Pound and the Dollar in the aftermath of the report as speculation continues to rise that the ECB will need to raise interest rates beyond 3.75%. There is some significant economic data released in the Euro-zone this morning with the M3 three month moving average expected to show that money supply remained largely unchanged in February at 9.7%. Elsewhere, German consumer confidence rose for the first time in five months in February providing yet further evidence that the economy has overcome the increase in sales tax.
The Pound came under increased pressure against the majors yesterday following a statement from Mervyn King, the governor of the Bank of England, who told a UK Treasury select committee that the UK housing market was beginning to slow. The statement also pointed to upside risks to inflation in the short-term but the implications for economic growth, should confidence be hit by slowing house prices, has seemingly weakened Sterling. In addition, a report earlier today has reiterated those concerns as UK house-price growth slowed by 0.4% in March, which provides an indication that higher borrowing costs are finally beginning to slow the property market. According to the Nationwide building society, prices rose 2.1% in the first quarter of 2007, the slowest pace in seven months with the average cost of a home falling to £177,083. Elsewhere, the Pound may struggle to make further gains against the majors this morning as the final estimate of UK gross domestic product in the fourth quarter is expected to confirm economic growth above trend at 3.0%.
The Dollar came under renewed pressure against the majors yesterday, dropping 0.3% versus the Euro and the Pound following a report on the U.S property market, which showed that new homes sales unexpectedly fell in February. Following the rebound in another gauge of house prices last week, speculation had been building that the biggest slump in the market for over 17-years had finally peaked. However, the report from the Commerce department yesterday showed that the sales of new homes had plummeted to the lowest level in nearly seven years, diminishing the prospects for a revival. In addition, the number of unsold homes on the market reached the highest level in 16-years with purchases dropping to an annual pace of 848,000 last month, which was significantly under forecasts. Therefore, the contrasting figures of last week will fuel further speculation that the housing market will be unable to support economic growth this year as higher interest rates continue to discourage first-time buyers. Nevertheless, the sustained growth in the U.S labour market is likely to propel growth this year and supplement the slump in housing, helping the consumer to maintain spending and preserve economic expansion.
In terms of economic data, the Dollar may come under further pressure today as a report on consumer confidence is expected to show that sentiment fell from a five-year high in March. The fallout from the subprime mortgage lending crisis is likely to weigh on optimism while higher fuel prices are also expected to have an impact as the index of consumer confidence falls to a reading of 108.5 from 112.5 in February. Recent surveys from the University of Michigan have shown that consumer sentiment fell to a six-month low in the preliminary estimate earlier this month while retail sales have also rose less than forecast as higher fuel prices limited spending. Another concern to consumer sentiment will be rising mortgage defaults with home foreclosure filings jumping 12% year-on-year in February as homeowners struggled with the decline of property values and higher mortgage rates. The concerns over rising petrol prices were further emphasised yesterday as crude oil jumped to the highest pace this year following the capture of British naval personnel in Iran.
The Euro continued to slide against the Pound yesterday but made modest gains versus the Dollar by the close of trading last night despite a lack of economic reports released in the Euro-zone. The single currency may continue to struggle this morning as a report may show that German business confidence fell for a third consecutive month in March on concerns that the tax increase will restrain consumer spending while export growth continues to slow. The Ifo index into business sentiment reached a record high in December but since the introduction of the value-added tax increase at the start of the year, the survey has continued to decline with a reading of 106.5 anticipated from 107 in February. In addition, the Euro has appreciated 10% against the Dollar in the past year alone and combined with a slowing U.S economy, German export growth may continue to dwindle after driving economic expansion to the fastest pace in six years in 2006. Elsewhere, the Euro did find some support yesterday following a statement from a member of the ECB’s governing council, Nicholas Garganas, who said that European interest rates may not have peaked yet and opened the door for further monetary tightening. In stark contrast, outgoing ECB member, Mitja Gaspari, has stated in the past week that inflation in the Euro-zone is under control and talk of any further rate increases is premature.
Following on from last week, the Pound has continued to make robust gains against the Euro, rising to the highest level in a month versus the single currency following a band of positive economic reports in the UK. A gauge of retail price inflation, which provides the best indication of consumer price expectations, rose to a 15-year high at an annual rate of 4.6% in February and provides further evidence that the Bank of England will need to continue raising interest rates in either April or May. Elsewhere, a separate report from the Commerce department showed a sharp rebound in retail sales over the past month and the report will only fuel further speculation that consumer spending will be able to supplement three interest rate rises since August and continue to support economic growth. The Pound may remain strong against the major currencies this week amid yet another band of economic data and the focus will fall on the final estimate for UK gross domestic product in the fourth quarter. The report is expected to confirm that growth stayed above trend at a rate of 3.0% year-on-year in the final three months of 2006, showing that the UK economy expanded at the fastest pace since 2004. However, a report from the Bank of England is expected to show a marginal drop in UK mortgage approvals, which may rekindle speculation that the prospect of higher interest rates are beginning to weigh on the property market.
The Euro made rapid gains against the Dollar last week but fell to a six-week low versus the Pound following a particularly sparse week in terms of European economic reports. However, that trend is set to be dramatically reversed as the focus in terms of data will fall on the EC sentiment indices later this week, which are expected to show that consumer and business confidence has steadily improved this year. In addition, business sentiment in Europe’s largest economy is forecast to remain at robust levels with the German Ifo index expected to decline modestly to a reading of 106.5 in March. European consumer confidence may have risen to the highest level in six years this month as unemployment in Germany dropped to lowest level since 2001 while the overall jobless rate in the 13-nations sharing the Euro is expected to fall 7.2% in February. European economic growth has accelerated to a degree that may prompt the ECB to continue raising interest rates beyond the current 3.75% as consumer sentiment combined with lower unemployment helps spur growth. The Euro may also receive a boost this week as the initial estimate for Euro-zone inflation is expected to show a moderate rise to 1.9% in March, holding below the Central Bank’s 2.0% ceiling for yet another month. However, persistent inflationary concerns are expressed in money supply growth into the Euro-zone, which probably held at a 17-year high of 9.8% in February.
By the close of trading on Friday last week, the Dollar had managed to claw back some gains against the majors after dropping to the lowest level versus the Pound since early February as the Federal Reserve indicated that they are moving closer towards a neutral stance. However, the U.S currency found some support as a report on the housing market showed that sales of existing homes unexpectedly surged by the most in three years last month. The rebound in sales indicates that the dramatic and lasting slump in the U.S property market has finally peaked and therefore the housing data this afternoon will take on added significance. New home sales is expected to rise from the slowest pace in nearly four years in February with sales increasing 5.7% to rebound from the slowest since February 2003. The Dollar may find further support this week as the personal income and expenditure report includes details of the Core PCE deflator, which is the Fed’s preferred measure of inflation and is expected to rise 0.2% from 0.3% in January.
The recent positive sentiment surrounding the Pound continued yesterday as strong growth in the retail sector pushed the UK currency to a six-week high against the Dollar while also gaining 0.2% versus the Euro by the close of trading last night. Following the Bank of England’s decision to lift interest rates on three separate occasions since August, it was widely anticipated that consumer spending, which accounts for a large proportion of economic growth, would continue to struggle over the coming months. UK retail sales declined 1.5% in January, which suggested that higher interest rates were weighing heavily on sentiment but the figures for February surged 1.4% and confirmed that the decline of the previous month was largely the result of seasonal effects. Therefore, the consumer sector is still looking relatively healthy and following the report yesterday it remains clear that the Bank of England will raise UK interest rates at least once more of the coming months to quash any lingering concerns about the upside risks to inflation. As a result, the Pound is set for its first weekly gain in a month against the Euro as reports showed that consumer price inflation unexpectedly accelerated, holding above the 2.0% target in February while the rebound in retail sales may prompt the MPC to raise rates early in April.
The Euro fell further against the Pound yesterday but achieved a fresh two-year high versus the Dollar before closing just 0.2% higher against the U.S currency amid a distinct lack of European economic data. Industrial Orders in the Euro-zone came in largely as expected in January and showed that growth in factory production continued to expand after the fastest economic growth in over six years. A number of key ECB speakers have been scheduled over the course of the week including the chairman, Jean-Claude Trichet, who failed to provide any further insights into the outlook for future monetary policy as he testified to the EU Parliament on Wednesday. In terms of economic data, the Euro may struggle to rebound against the Pound as a report this morning may show that the European current account balance remained unchanged at €2.3 billion in January.
The Dollar managed to stage a modest rebound against the majors last night, recovering from a fresh two-year low versus the Euro as the Federal Reserve kept interest rates on hold for a six month and softened its tightening bias in the accompanying statement. Therefore, it seems evermore likely that the Fed will begin cutting interest rates in the second half of the year as U.S economic growth continues to slow while inflation is expected to moderate. In terms of economic data, the Dollar came under further pressure yesterday as a closely watched gauge of the future direction of the U.S economy fell by the most in a year in February. Following a severe dip in consumer sentiment, an index of leading economic indicators fell 0.5%, which was higher than expected and supports the view of slow to moderate growth this year. In addition, there have been signs of rising unemployment as weekly jobless claims averaged 335,000 in February while non-farm payrolls slumped to just 97,000 compared with a monthly average of 189,000 in 2006. The Dollar may decline further this afternoon as report on the U.S housing market may show that the sales of existing homes slowed in February, sparking fresh concerns that the slump in housing has yet to peak.
Initially, the Pound declined 0.2% against the Euro yesterday and also dropped modestly versus the U.S Dollar following the release of the minutes from the Bank of England’s last policy meeting, which all but diminished the prospect of a further rate rise in the near-term. The monetary policy committee voted 8-1 in favour of keeping interest rates on hold at 5.25% with David Blanchflower unexpectedly supporting a cut. Despite recent evidence to suggest that retail price inflation has accelerated to a 15-year high in February, Blanchflower argued in the statement yesterday that there is spare capacity in the labour market to reduce interest rates to 5.0%. The Pound came under renewed pressure as the report was expected to show that the dissenters favoured a rise in rates as appose to a cut. However, higher wage demands combined with the sustained growth in property prices means that the Central Bank are still likely to lift interest rates in the medium term with the next likely move in May or June. Elsewhere, a separate report yesterday provided some support to Sterling as UK manufacturing orders and factory price expectations rose to the highest level in 12 years in March. The report from the Confederation of British Industry showed that new orders climbed to the highest reading since May 1995 and the index will support the BoE’s view that growth in manufacturing can support economic expansion this year.
The Euro failed to take advantage of any Sterling weakness yesterday but managed to advance 0.4% versus the Dollar despite a fundamental lack of economic data released in the Euro-zone. However, the chairman of the European Central Bank, Jean-Claude Trichet, testified to the EU Parliament yesterday but failed to give any further insights into future monetary policy and only reiterated the cautious tone of his last statement. Following a seventh interest rise in little over a year this month, Trichet reiterated that the Central Bank will continue to monitor all risks to price stability but didn’t give a clear insight as to when policy makers may lift rates again. The Euro has remained largely unchanged versus the majors this morning as a report showed that industrial orders came in as expected in January.
The Dollar has fallen to lowest level against the Euro since March 2005 over the past trading session and has also dropped to a six-week low versus the Pound as the Federal Reserve kept U.S interest rates on hold at 5.25%. It was widely anticipated that policy makers would leave rates unchanged but the accompanying statement showed that the Central Bank has removed a reference to additional firming in monetary policy. The shift in tone and language of the statement obviously weighed heavily on Dollar sentiment as the Fed dropped its tightening bias for the first time and gave an indication that policy makers are less optimistic on the outlook for the U.S economy. With severe slumps in housing and manufacturing weighing on economic growth, the Fed have seemingly given themselves a platform to begin cutting U.S interest rates in the second half of the year. In terms of economic data, the Dollar may continue to decline as the weekly jobless claims are expected to rise from 318,000 in the week ending 17th March.
The Pound advanced yesterday and made significant gains against the majors, firming 1.0% versus the Dollar and a further 0.9% against the Euro as UK inflation unexpectedly accelerated in February to the second fastest pace in over 10-years. Consumer prices rose slightly above expectations at 2.8% year-on-year last month while retail price inflation accelerated to a 15-year high at 4.6% and the data yesterday will only reinforce the likelihood of a further rise in UK interest rates either in April or May. Higher wage demands combined with sustained growth in the UK property market may force the MPC to raise rates early in April by a further 25 basis points to peak at 5.50%. The minutes from the Bank of England’s last policy meeting will take centre stage this morning after the 9-strong committee elected to hold UK interest rates in March and the report this morning will provide an insight into future monetary policy. It is widely anticipated that the MPC voted 7-2 in favour of keeping rates on hold with the two dissenters recommending a further quarter-point rise. However, if any more members elected to shift their stance towards a further rise in interest rates, we can expect the Pound to make widespread gains against both the Euro and the Dollar. In addition, the tone and language used in the accompanying statement will be heavily scrutinized as the market looks for direction on policy and the chances of a further hike next month.
The Pound may also receive a boost as a report from the Confederation of British Industry is expected to show that industrial orders remained at the highest level in a decade for the month of March, which will support the view that growth in manufacturing will be able to support economic growth. Elsewhere, the Chancellor Gordon Brown will deliver what will probably be his final budget at midday today and may borrow a further £6 billion more than he forecast just four months ago in order to fund plans for health and education spending. Therefore, the government’s deficit may total £101 billion in the three fiscal years through to April 2009 and we can expect some volatility in the market during the announcement.
The Dollar continued to decline against the Pound yesterday and remained flat versus the Euro despite a positive economic report, which seemed to suggest that the slump in housing may have peaked. Builders started work on more new homes in the States that previously anticipated with housing starts rising to an annual rate of 1.525 million in February, which was an increase of 9% from January. The report yesterday will ease concerns that a worsening construction slump would weigh on economic growth as housing starts rebound from the slowest pace since 1997. However, the focus today will fall on the FOMC rate announcement this evening where the Federal Reserve are expected to keep interest rates on hold at 5.25%. The tone of the accompanying statement will also be closely watched as the Open Market Committee are expected to retain a tightening bias and that may provide a boost to the ailing U.S dollar.
The Pound managed to make considerable gains against the majors yesterday, firming 0.2% versus the Euro and a further 0.3% against the Dollar as we closed above trend resistance at 1.9435 last night and from a technical perspective, it looks increasingly likely that we will continue to climb higher. There was a distinct lack of UK economic data released yesterday but a survey from the property website Rightmove plc showed that UK house prices grew 1.5% in March, pushing the annual rate to 12.2% from this stage in 2006. It seems that the Bank of England’s decision to lift interest rates three times since last August has seemingly failed to cool the property market with house prices still advancing. The focus today in terms of economic data will undoubtedly fall on the UK consumer price index, which is expected to show that inflation exceeded the Central Bank’s 2.0% target for a 10th consecutive month in February. Consumer prices may stay relatively unchanged at 2.7% year-on-year last month but the retail price index may prove more influential in shaping consumer price expectations. RPI inflation has doubled in the past year, reaching the highest level since 1992 and if the figures today show that prices rose beyond 4.2% last month, we can expect the Pound to make further gains against the majors.
The Euro remained relatively unchanged against the Dollar by the close of trading last night but declined 0.2% versus the Pound following a fundamental lack of data released in the Euro-zone. That trend may stay fairly consistent throughout the week as the main focus will fall on Jean-Claude Trichet’s testimony to the EU Parliament tomorrow where the chairman of the European Central Bank may provide some clues to future outlook for monetary policy. The Euro has managed to stay firm this morning following the release of German inflationary data where producer prices were expected to rise 0.3% in February although the annual rate of inflation may have dropped to 2.8%. Elsewhere, the Euro may stay fairly unchanged against the majors as a separate report is expected to show that the European trade balance was reduced to €1.8 billion in January from €2.5 billion the previous month.
The Dollar continued to decline against the Pound yesterday and the trend seems to suggest that the U.S currency will continue to decline ahead of the FOMC interest rate announcement tomorrow. It is widely anticipated that the Federal Reserve will leave rates unchanged at 5.25% but the post-decision statement will be heavily scrutinized for any change in tone as growth continues to lose momentum. However, Fed officials may maintain a tightening bias in the statement tomorrow as inflation remain above the Fed’s target. Elsewhere, the Dollar may be given a reprieve this afternoon as evidence begins to build that the slump in the U.S housing market is beginning to peak. Housing starts are expected to show that builders started work on new homes at the second-slowest pace in nine years last month, rising to an annual rate of 1.45 million.
Following on from last week, the Dollar continued to decline against the majors, dropping to a three month low versus the Euro as recent reports provide fresh concerns of slowing U.S economic growth. On Friday, the University of Michigan’s preliminary index of sentiment showed that U.S consumer confidence fell this month following an increase in fuel prices while U.S stocks fell by the most in four years. The sentiment index fell to a reading of 88.8 in March, which represents the lowest figure since September last year and it seems that consumer spending, which accounts for a large proportion of economic growth, will continue to slow in pace this year. Elsewhere, a separate report showed that higher fuel prices have managed to push U.S inflation higher over the last month, which will keep the Federal Reserve on red alert ahead of the monthly FOMC rate announcement on Wednesday. Consumer prices rose 0.4% in February following a more modest 0.2% increase the previous month and persistent inflationary pressures means the chairman of the Fed, Ben Bernanke, will find it difficult to signal an interest rate cut when policy makers meet this week. Therefore, it is widely anticipated that U.S interest rates will remain on hold in March but it is beginning to look increasingly likely that the Fed will cut rates up to three times this year as the slump in the housing sector continues to threaten the pace of economic growth.
The positive sentiment surrounding the Euro continued last week as the single currency made widespread gains against both the Pound and the Dollar despite a particularly sparse week in terms of economic reports. The Euro has risen to the highest level against the Pound since August last year over the past week and from a technical perspective, it now looks very likely that we will continue to fall through the support level at 1.4600. There is a distinct lack of economic data released in the Euro-zone this week and the focus will fall on Jean-Claude Trichet’s testimony to the EU Parliament on Wednesday where the chairman of the ECB may give some insights into the future outlook for monetary policy. Elsewhere, the German consumer price index may provide an indication of inflationary pressures in Europe’s largest economy, which may prompt the ECB to raise rates for the eighth time in this tightening cycle as early as May.
The Pound has made significant gains against the Dollar over the past week as the technical outlook seems to suggest we may head higher still ahead of a key week in terms of economic events. However, the Pound has come under renewed pressure versus the Euro as Sterling proves to be more sensitive to the unwinding of UK carry trades with Japan than it’s European counterpart. The focus this week in terms of economic reports will fall on the release of the minutes from the Bank of England’s last policy meeting where the committee elected to hold UK interest rates at 5.25%. It is possible that two members of the 9-strong panel voted to raise rates by a further quarter-point this month but the tone and language used in the minutes will be heavily scrutinized for any indication of a further rise in rates over the coming months. Meanwhile, the release of the February consumer price index tomorrow should prove pivotal as UK inflation is expected to exceed the BoE’s 2.0% target for a 10th consecutive month. Consumer prices are expected to remain relatively unchanged at 2.7% year-on-year in February but the retail price index, which may prove more influential in shaping consumer price expectations, is expected to rise modestly from 4.2% in January. RPI inflation has doubled in the past year to the highest level since 1992 and if the figures exceed 4.2% last month, we can expect the Pound to strengthen as it will look very likely that UK interest rates will rise for a fourth time since last August. Data Released 19th March
by Adam Solomon
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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 much awaited European bank stress tests were completed on Friday. All major banks passed the tests including the four major UK banks that took part. Also giving the pound a boost on Friday was a strong second quarter GDP figure. Growth... Read more
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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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