Following on from last week, the Dollar relinquished much of the earlier gains against the majors on Friday as the advanced estimate of U.S gross domestic product showed that the economy grew at the slowest pace in four years in the first quarter. The report from the Commerce department confirmed an annual growth rate of 1.3% in the first three months of the year, which was significantly slower than expected following the dismal performance of the housing market and the ever-widening trade deficit. The primary driver of economic expansion has been consumer spending while a separate gauge of the report showed that a measure of inflation rose at a faster pace. Therefore, the focus today will undoubtedly fall on the personal income and expenditure report, which is expected to confirm that the Fed’s preferred gauge of inflation rose at an annual rate of 2.2% in March. The renewed risks to price stability have been sourced to a jump in oil prices over the last quarter and with inflationary pressures still a concern to policy makers, it is unlikely that U.S interest rates will be cut in the short-to-medium term. Elsewhere, the Dollar may come under pressure later this afternoon as a report on the U.S manufacturing sector is expected to provide the first insight into activity at the start of the second quarter. The Purchasing Manager’s index is forecast to slow dramatically in April to a reading of 54.5 from 61.7 the previous month and the report will provide further evidence that the U.S slowdown is showing few signs of peaking.
In contrast to the U.S economy, economic growth in the Euro-zone has been gathering momentum this year despite higher interest rates, a strengthening Euro and the introduction of the German VAT increase at the start of the year. The Euro rose to equal a record high against the Dollar last week and has also been making steady gains against the Pound despite the fundamental lack of economic reports released. The single currency may continue that trend at the start of May as a barrage of economic reports increase the chances of further monetary tightening in the Euro-region. The EC sentiment index is expected to show that consumer and business confidence, which has been strengthening since early 2003, continued to rise in April as unemployment fell to a record low. As a result, the report will further strengthen the case of higher interest rates although a strong Euro will remain a concern to policy makers as the U.S slowdown continues to hamper Euro-zone export growth. Elsewhere, the Euro may struggle to consolidate on the recent gains as the Flash estimate of consumer prices is expected to show that inflation moderated from 1.9% to 1.8% in April.
Over the past couple of weeks, the Pound has increased to highest level against the Dollar since June 1981 as a report showed that UK inflation rose to a decade high in March and forced the governor of the BoE to write a letter of explanation to the Chancellor. Combined with the minutes from the Central Bank’s last policy meeting, which showed two members of the committee recommended a further quarter-point hike in April, the chances of May interest rate rise has been completely factored into current market movement. The National Institute of Economic and Social Research has recently said that UK inflation will exceed the government’s 2.0% target for another year because the BoE cut interest rates too far in 2005. The report also said that consumer price inflation will average 3.0% over the next quarter and stay above the 2.0% target until the second quarter of 2008. The Central Bank’s current approach to tackling inflation focuses solely on keeping consumer prices in check and doesn’t to take into account rising asset values, money supply and credit growth. In terms of economic data, the Pound has suffered mixed fortunes this morning as UK house prices increased by the most in four years in April according to the survey from Hometrack Ltd. Prices rose 0.7% on the month, which suggests that the property market has continued to expand despite higher interest rates while elsewhere, a gauge of consumer confidence declined over the same period, reflecting the fragile state of many household finances.
The Pound came under renewed pressure against the majors yesterday, dropping 0.5% versus the Dollar to close under the $2.0000 barrier for the first time in a week while Sterling also fell considerably against the Euro. Following another round of seemingly positive economic data, the Pound retraced back towards the major support level at 1.9875 and a clean break below that level is likely to see further downside movement. The UK currency failed to find some support despite a stronger-than-expected report on the property market as UK house prices rose that the fastest pace in four months in April. The average cost of a home increased 0.9% on the month despite initial forecasts projecting a 0.6% decrease and the report emphasised that demand remains high with the market weathering the highest borrowing rate in nearly six-years. House prices rose a staggering 10.2% from a year earlier and combined with faster-than-expected economic growth in the first quarter, the Bank of England have the scope to continue raising interest rates this year. However, the adverse reaction of the Pound yesterday in spite of the positive data yesterday suggests that the movement is largely technical after Sterling rallied to the highest level against the Dollar since June 1981 following the inflation report last week.
The Euro came within a whisker of touching the all-time high against the Dollar this week but retraced back to test the support at 1.3600 yesterday, dropping 0.3% on the session while the single currency also made robust gains versus the Pound. The positive sentiment surrounding the Euro is likely to continue over the coming weeks as a number of ECB governing council members have expressed concerns over the current risks to price stability and have paved the way for another rate increase in June. The Euro rose against Sterling as a report in Germany showed that a gauge of consumer confidence rose by more than expected in May as the index rose to a reading of 5.5 from 4.4 in April. The German government has also raised its economic growth forecast this week, saying that the economy will expand 2.3% this year from initial expectations of 1.7% and the report provides a further indication that the German economy is in the midst of a strong upswing. Record low unemployment is likely to continue to improve consumer sentiment despite the introduction of the value-added tax increase at the start of the year.
The Dollar managed to claw back some significant gains against Sterling yesterday, climbing 0.6% by the close of trading as we look to test the trend support at the crucial 1.9875 level. In last week, the U.S currency has declined to lowest level in over 25-years versus the Pound and on Wednesday fell to a near-record low against the Euro but from a technical perspective, the market was looking increasingly ‘over-bought’ and a retracement back was always inevitable. In terms of economic data, the Dollar may struggle to consolidate the gains made against the majors as the advanced estimate of U.S GDP is expected to show that economic growth slowed in the first quarter. The report may show that economy grew at the slowest pace in over a year in the first three months of 2007, led by the sustained slump in housing and business investment. Gross domestic product, the value of all goods and services, is expected to rise to an annual rate of 1.8% from 2.5% in the fourth quarter, the weakest since late 2005. The Federal Reserve has recently estimated that the U.S economy will perform at a moderate pace this year with consumer spending driving expansion as a slowdown in manufacturing and real estate shows few sings of abating. Therefore, the focus today will fall largely on the final estimate of the Michigan sentiment, which is expected to show that consumer confidence declined for a third month in April led by an increase in fuel prices over the same period.
The negative sentiment surrounding the Dollar continued yesterday as the U.S currency fell to a fresh two-year low versus the Euro and also declined against the Pound despite a positive round of U.S economic data. Recent reports have suggested that the slump in housing has showed few signs of abating as sales of previously owned homes plummeted to the lowest level in four years last month. A separate gauge of the property market was released yesterday and showed that the sales of new homes actually rose for the first time in three months as builders added incentives in order to encourage first time buyers. Purchases of new homes rose 2.6% to an annual pace of 858,000 in March while the supply of unsold properties swelling the market unexpectedly declined. However, the surprising gain in sales only provides a glimpse of hope that a recovery in demand is taking shape with many investors speculating that the biggest slump in the sector for over 17-years will continue to hamper economic expansion. Elsewhere, the Dollar also failed to find some support after a separate report showed that U.S durable goods orders rose by much more than anticipated in March. Orders, including the volatile transportation gauge, increased 3.4% after a 2.4% gain in February and the report provides an indication that corporate spending is starting to recover in the first quarter.
The Euro remained largely unchanged against Sterling yesterday but increased to a near-record level versus the Dollar after business confidence in Germany rose for the second consecutive month. The Ifo sentiment index climbed to a reading of 108.6 in April, which represents the second-highest level ever achieved and indicates that the European economic growth will continue to accelerate in Europe’s largest economy. Elsewhere, the Euro continued to make gains against the Dollar after the German government raised its growth forecast for this year to 2.3% from 1.7% previously estimated. Unemployment within the Euro-zone is currently at the lowest level on record, which has helped consumer spending in the wake of the introduction of the sales tax increase at the start of the year. In terms of economic data, the Euro may remain fairly strong this morning as a gauge of German consumer confidence rises in May, showing that sentiment remains at a level consistent with growth.
The Pound managed to consolidate back above the $2.00 level yesterday and remained largely firm versus the Euro as the preliminary estimate of UK GDP showed that the economy expanded faster than anticipated in the first quarter. Gross domestic product, the value of all goods and services, increased 0.7% in the first three months of the year, which matches the pace of the previous two quarters and suggests that higher interest rates have yet to curb growth. The UK economy is currently performing at the highest level in nearly three years and with the inflation above 3.0% over the past month, the BoE are widely expected to continue raising interest rates in the near to medium term. In terms of economic data, the positive sentiment surrounding the Pound may continue this morning as a report from Nationwide is expected to show that UK house prices increased a further 0.6% in April, which provides yet another indication that higher interest rates have done little slow demand.
The Pound managed to snap a three day losing steak against the Dollar yesterday and closed above the significant support level at $2.0000 despite a reasonably negative report on the UK manufacturing sector as the CBI’s industrial trends survey weakened in April. Elsewhere, the Pound managed to remain fairly strong against the Dollar, gaining 0.2% on the session but dropped under 1.4700 for the first time in ten days versus the Euro. The governor of the Bank of England, Mervyn King, gave a testimony to parliament on UK inflation where he highlighted that there could be a “sharp” decline in the core rate of inflation over the next four to six months and reiterated that the MPC remains determined to bring inflation back within its 2.0% target. The Bank of England has lifted interest rates three-times since last August with the current benchmark lending rate at the highest level in five-years. Yesterday, the Bank of England said that the ongoing strength in the UK housing market was one of the main drivers of inflation and King’s comments will only add to speculation that UK interest rates will rise to 5.50% next month. In terms of economic data, the Pound may come under some pressure this morning as the preliminary estimate of UK gross domestic product is expected to moderate to 2.8% in the first quarter. The report should provide an indication that the UK economy has peaked with growth stagnating from the fastest pace in three years at 3.0%.
The Euro continued to make strides against the Dollar yesterday, approaching a record high at 1.3369 while the single currency also make widespread gains versus the Pound despite a seemingly negative report on the Euro-zone industrial sector. Orders plunged -0.7% in February despite initial forecasts of a rise towards 1.0% and the report provides a further insight that the rising strength of the Euro is having a negative impact on European manufacturing and export growth. There has been widespread concerns that a strong currency will have a damaging effect on the economy and the report yesterday may have an influence on the ECB’s decision to continue lifting interest rates. In addition, with Euro-zone production showing multiple signs of slowing, the focus this morning will fall on the German Ifo business climate index, which has risen to the highest level in a decade in recent months. Therefore, the Euro may come under some pressure if the index follows the same pattern as previous reports although initial forecasts suggests that the sentiment index probably rose for a second month in April.
The Dollar fell close to a fresh two-year low against the Euro yesterday, dropping 0.4% by the close of trading last night following a band of negative U.S economic data. The Conference Board’s index of consumer confidence fell to the lowest reading in eight months in April on concerns over rising fuel prices and the wave of subprime mortgage defaults. The index fell to a reading of 104.0 this month from 108.2 in March and a separate gauge of the report showed that optimism in the job market had declined while the proportion who said they planned to invest in the property market was the lowest in over two years. Following the rapid and sustained slump in housing and manufacturing, the Federal Reserve have been largely reliant on a strong labour market in order to promote consumer spending and keep the economy expanding at a moderate pace. Elsewhere, the negative sentiment surrounding the Dollar continued as a separate report on the housing sector showed that sales of existing homes declined by more than anticipated in March. The report showed that house purchases dropped 8.4% last month to the lowest level in nearly four years and provides a further indication that the biggest slump in housing for over 17-years has shown few signs of peaking.
The Dollar managed to consolidate against the majors yesterday after last week’s sharp decline as the U.S currency rose 0.2% versus the Euro and a further 0.1% against the Pound, breaking through the major support at the $2.00 level. Despite the apparent lack of economic data released in the States, the U.S currency continued to build up momentum against Sterling and any dollar buyers would be well placed to insert a stop order in the market to protect against any further adverse movement. In terms of economic data, the Dollar may come under some pressure this afternoon as a report on the U.S housing market may show that existing home sales fell to the lowest level in three months. The dramatic and sustained downturn in the housing market has been a primary source of a slowdown in U.S economic growth and recent reports have indicated that the worst slump in over 17-years is showing few signs of abating. Home resales are expected to fall 4.3% in March to an annual rate of 6.40 million while separate reports have shown that subprime mortgage defaults are rising and that may swell the market with unsold properties as owners are reluctant to reduce prices. Elsewhere, the Dollar may come under further pressure this afternoon as a gauge of U.S consumer confidence is expected to show that the sentiment index dipped to a reading 105.0 from 107.2 in March. The U.S economy has been increasingly reliant on retail growth and a strong labour market but higher fuel prices may have had a negative impact on consumer spending over the past month.
The Euros rapid and unrelenting advance against the Dollar was halted yesterday as the single currency fell 0.2% versus its U.S counterpart amid a sparse supply of economic data released in the Euro-zone. However, the Euro has been making steady progress against the Pound and that trend may continue this morning as European industrial orders are expected to increase 1.1% in February. Despite the well publicised slowdown in the U.S, it seems that export growth will continue to drive the Euro-zone economy, which has been expanding at the fastest pace since 2000. Elsewhere, the French presidential election continues to dominate the news as the contest is refined to two contrasting political solutions to weak growth combined with high unemployment. French politicians have notoriously been vocal in their concerns over a strong Euro quashing export demand but that is seemingly having little influence on Euro-zone monetary policy with the ECB expected to raise rates to 4.00% in June.
After advancing to the highest level since June 1981, the Pound has endured three days of declines versus the U.S Dollar with many investors speculating that the Sterling rally may have peaked. However, recent reports have shown that UK inflation is at the highest level in over a decade at 3.1% and with house prices also rising in the first quarter, the Bank of England may need to raise interest rates beyond 5.50% next month. Elsewhere, average hourly earnings have also picked up over the past month as a strong labour market propels wage growth, which is likely to increase inflationary pressures within the economy. As a result, the Pound managed to push through the $2.00 barrier for the first time since September 1992 and continued rising to peak above 2.0100, which was adjudged to have been too rapid and the Pound looked relatively “over-bought”. The subsequent reversal was well anticipated as we dropped to test the support around the $2.0000 level but with interest rates expected to rise in May, the Pound may receive further support and look to consolidate gains above that level. Nevertheless, the Pound may come under further pressure in the very near-term as a report this morning is expected to show that manufacturing remained fairly subdued in the first quarter. The monthly industrial trends survey is forecast to fall dramatically in April with the volume of output measure weakening to a reading of 5.0 from 8.0 the previous month according to Confederation of British Industry.
Following on from last week, the Pound increased to the highest level versus the Dollar since June 1981 after a string of economic reports showed that UK inflation has accelerated to the fastest pace in a decade, fuelling speculation that the Bank of England will continue raising interest rates in May and beyond. The minutes from the Bank of England’s last policy meeting showed that two members of the nine-strong committee voted in favour of a rate hike in April and that only increases the prospect of quarter-point rise in May. As a result, the Pound managed to consolidate against the Dollar, closing above the major support at $2.0000 but the sharp reversal that ensued has led to speculation that the Sterling rally may have peaked. In terms of economic data, the Pound remained fairly strong towards the end of the week as UK retail sales rose for the second month in succession in March. Sales increased 0.3% after a revised 1.6% rise in February and the report will only provide a further indication that higher interest rates have done little to dampen consumer spending. There is a sparse supply of economic data released in the UK this week but the preliminary estimate for gross domestic product is expected to show that the UK economy slowed in the first quarter after interest rates rose to highest level in 5-years.
The positive sentiment surrounding the Euro continued last week as the single currency increased to a near record high versus the U.S Dollar and managed to claw back some significant gains against the Pound by the close of trading on Friday. The Euros advance increased in momentum despite German producer price inflation slowing to the lowest level in over two years in March following the sudden drop in oil prices over the same period. The gauge of producer prices gave an indication that inflationary pressures within Europe’s largest economy have moderated over the past month although we fully expect the ECB to retain a tightening bias and increase interest rates in June. There is a sparse supply of economic data released in the Euro-region this week with the focus falling on the German industrial sector. The Ifo business climate index for April is expected to increase modestly to a reading of 107.8 from 107.7 in March, not far short of December’s record high. Elsewhere, the Euro may receive further support from the preliminary German CPI figures, which are expected to show that core inflation remains a concern to policy makers.
The Dollar has been in rapid decline over the past week, falling to the lowest level in 25-years versus the Pound and approaching a near-record low against the Euro as the dramatic slump in housing and manufacturing threatens the pace of economic expansion. The U.S formally has a “strong Dollar” policy and the U.S treasury secretary, Hank Paulson, came out in support of the ailing currency towards the end of last week, which did provide some initial support to the Dollar. There is a host of significant economic indicators released this week with the focus falling on the U.S housing market with both existing and new home sales expected to show that the sector remains depressed. The dramatic slump in housing has been the primary reason for economic growth slowing to such a degree and the advanced gauge of U.S GDP should confirm that the economy was expanding well below trend growth in the first quarter. Elsewhere, the Dollar may come under further pressure as a report on U.S consumer confidence is expected to show that sentiment fell dramatically to a reading of 105.0 from 107.2 in April, partly as a result of high fuel prices.
The Pound’s recent resolve was tested yesterday as the UK currency fell for the first time in seven days, dropping 0.3% versus the Dollar after achieving a 26-year high earlier this week. A slump in global shares has seemingly prompted investors to unwind UK carry trades, which has sent the Pound trading lower, ending the longest winning streak since November last year. Recent economic reports have fuelled speculation that UK interest rates will continue to rise over the coming months as wage growth combined with higher inflation threatens the pace of economic expansion. However, the Pound dipped yesterday as investors shunned high-yielding currencies after equity markets in Europe and Asia slid and many economists have speculated that the Pound is now looking overly-stretched at the current levels. Sterling has gained 10% against the Dollar in the past year alone and this week we broke the $2.00 barrier for the first time since September 1992. Historically, the Pound has come under severe pressure in the months that follow a break above this level and therefore we have advised any Dollar buyer’s to take advantage of the current price or at least place a stop order in the market. In terms of economic data, the Pound may remain fairly strong this morning as a report on UK retail growth may show that sales increased 0.5% in March while the annual pace may decline to 4.7% from 4.9% the previous month.
The Euro continued to rise against the Dollar yesterday, pushing towards the highest level in history at 1.3640 while the single currency also made widespread gains against Sterling despite the apparent lack of economic data released in the Euro-zone. German producer price inflation, which provides an indication of price pressures on the economy, slowed to the lowest level in over two years in March following the abrupt drop in oil prices over the same period. Producer prices increased 2.5% year-on-year last month, which represents the lowest reading since September 2004 and with the price of oil dropping 18% in just eight months, inflationary pressures have seemingly moderated in the 13-nations sharing the Euro. In addition, a report earlier this week has showed that consumer price inflation has remained below the ECB’s 2.0% ceiling for the past seven months in succession but policy makers have retained a tightening bias and we fully anticipate Euro-zone interest rates to increase to 4.00% by June.
The Dollar managed to claw back some modest gains against the Pound yesterday but fell to a fresh two-year low versus the Euro as an index of U.S leading economic indicators rose for the first time in three months in March. The reports provides an insight into the future course of the U.S economy as the labour market continues to be the prime source of growth and factory orders increased beyond expectations. Elsewhere, a separate report showed that initial jobless claims fell to 318,000 in March from 335,000 the previous month but the latest report from the Labour Department has showed that the number of people out of work and claiming benefits actually fell less than forecast. The report provides the first indication of a softening in the U.S labour market as the figures show that employers are cutting workforces amid the sustained slump in housing and manufacturing sectors.
Initially, the Pound surged through the resistance level at 2.0105 against the Dollar yesterday morning and rose to its strongest level in more than 25-years following the release of the minutes from the Bank of England’s last policy meeting. The report showed that the nine-strong monetary policy committee voted 7-2 in favour of a ‘no change’ this month while the two dissenters broke rank to recommend a further quarter-point rise. Despite the remaining members of the panel believing that inflation will slow over the coming months, the report yesterday reinforced expectations that UK interest rates will rise to 5.50% in May. In terms of economic data, the Pound received further support and increased the pressure on the Bank of England as a gauge of average hourly earnings showed wage growth at 4.6% in the three months to March. The Central Bank considers earnings below the 4.5% threshold as consistent with stable inflation and with consumer prices currently at the highest level in a decade, the chances of a 50 basis point hike have been severely increased. As a result, the Pound rose to the highest level against the Dollar since June 1981 but endured a sharp reversal later in the session as profit taking saw the U.S currency stabilise after hitting the 26-year low. Historically, the Pound has dropped significantly against the Dollar after breaking the $2 barrier, which was the case in 1991 and again in 1992 and therefore, Dollar buyers would be well advised to take advantage of the current level or at the very least place a stop order around the support at $2.00.
The Euro has managed to claw back some gains against the Pound in the past trading session and is also likely to achieve a record-high versus the Dollar as policy makers reinforce expectations of a further quarter-point rate hike in June. The single currency has increased dramatically against the Dollar over the past year and some European politicians have expressed concerns over moderating economic growth following the slowdown in the U.S, which should have a negative impact on Euro-zone exports. However, in spite of the Euro’s strength, policy makers within the ECB’s governing council remain optimistic that Euro-zone growth will be able to sustain momentum this year after accelerating to the fastest pace since 2000. As a result, the Euro will continue to drive forward against the weak U.S Dollar and may also make further strides versus the Pound with the ECB monthly bulletin expected to retain a hawkish rhetoric this morning.
The Dollar fell to a fresh two-year low versus the Euro yesterday and came under intense pressure versus the Pound as a number of U.S officials and policy makers remained coy about the recent Dollar decline. The U.S formally has a “strong Dollar” policy but U.S officials recognise that a weak currency should boost U.S exports and thusly reduce the ever-widening trade deficit. By the close of trading last night, the Dollar had managed to stabilise versus the Pound and the Euro and may reverse further gains this afternoon as an index of U.S leading economic probably rose in March for the first time this year. The Conference Board’s index may rise 0.1%, signalling that slowing growth in the economy is struggling to overcome the slumps in Housing and factory output this year. However, it can be argued that the ongoing strength in the U.S labour market is continues to support consumer spending and that may be reflected in the index this afternoon.
The Pound surged forward against the Dollar yesterday, rising to the highest level since September 1992 as we breached the $2 barrier for the first time since ‘Black Wednesday’. The move was driven by contrasting inflation data as UK consumer price inflation accelerated to the fastest pace in a decade in March, which means that the governor of the Bank of England, Mervyn King, will be forced to write a public letter of explanation to the Chancellor. Consumer prices unexpectedly rose 3.1% over the past month as we continue to deviate from the government’s 2.0% target and that will surely prompt the BoE to lift interest rates aggressively over the coming months. After inflation accelerated to such a degree, the market has now fully priced in a projected rate hike next month while speculation intensifies that the MPC may need to consider back-to-back increases in May and in June. In stark contrast, a report on U.S consumer inflation showed that core prices rose less than forecast in March and supports the Fed’s view that inflation will subside as the economy slows.
Over the past month, Mervyn King has stated that he remains determined to contain inflation and the surge yesterday marked the first time that the Central Bank missed the 2.0% target by more than a percentage point since taking control of monetary policy in 1997. The Pound has continued to advance overnight and it seems increasingly likely that we will test the resistance at 2.0105 after closing last night at the highest level since Sterling was ejected from the European exchange rate mechanism in 1992. The focus this morning will fall on the minutes from the Bank of England’s last policy meeting where the MPC elected to hold UK rates at 5.25%. Therefore, it will be interesting to gauge how the nine-strong committee voted in April and it is possible that there may be a three-way split with David Blanchflower expected to maintain his stance for a cut. Nevertheless, the Pound will be further underpinned by strong growth in the UK labour market with unemployment expected to remain unchanged at 2.9%.
The Euro managed to advance 0.3% against the Dollar yesterday but came under significant pressure versus a resurgent Pound as we fell towards the lowest level since late January in the aftermath of the UK inflation data. The single currency failed to prevent the fall despite yet another positive economic report from Germany where investor confidence rose the highest level in 10-months in April. The ZEW index showed that investor and analyst expectations increased to a reading of 16.5 this month, the highest since June last year and provides a further indication that growth in the economy is accelerating. Elsewhere, a separate report showed that Europe’s trade balance increased to a surplus of €200 million for the month of February and the reports point to the need for further monetary tightening over the months. The market has factored in a 100% chance of an interest rate rise in June and recent report have suggested that the ECB’s governing council will need to lift rates beyond 4.0%.
Data Released 18th April
UK 09:30 BoE MPC Minutes – April Meeting
UK 09:30 Claimant Count/Unemployment Rate (March)
UK 09:30 Average Hourly Earnings (3 months to February)
The Pound advanced against the Dollar yesterday and closed in on the illusive $2 level as signs of higher UK inflation pushed the Pound to the highest level since “Black Wednesday in September 1992. UK Producer price inflation rose by the most in 11 months in March as companies increased prices with rising inflationary concerns feeding into the economy. Output prices gained 0.6% in February and the report follows recent comments from a number of policy makers in the Bank of England who have reiterated concerns that companies are charging higher prices that will ultimately quicken the pace of inflation. The focus this morning will now fall heavily on the March consumer price index, which is expected to show that UK inflation held firm at the second highest rate in over 10-years last month. Consumer prices may have risen 2.8% year-on-year, the same pace as in February, and remains well above the Bank of England’s 2.0% target. Therefore, the report this morning combined with the index of factory-gate inflation yesterday will surely increase the chances of a further interest rate rise in the very near-term. As a result, the Pound made rapid gains against the Dollar, rising to the highest level in 14-years to peak at 1.9939 yesterday and from a technical perspective, Dollar buyers would be well advised to place a stop order in the market to protect against a reversal.
The Dollar has been coming under severe pressure over the past few sessions despite recent comments from the Federal Reserve, which we designed to shift the attention away from interest rate cut over the medium-term. However, the U.S currency has plummeted to lowest level against the Pound in nearly 15-years and is also closing in on a record low versus the Euro as recent evidence suggests that the dramatic slump in housing has yet to peak while trade relations with China continue to be strained. In terms of economic data, the Dollar failed to find support yesterday afternoon despite a seemingly positive report on the retail sector. Sales rose by the most in three months in March, which suggests that rising incomes with continue to boost consumer confidence and drive economic growth this year.
The Euro continued to make gains against the Dollar yesterday and we are coming close to a record high against the U.S currency after reaching the best level for over two years at 1.3576. The recent strength of the Euro has been underpinned by a number of hawkish statements from a host ECB officials while robust economic growth has increased the chances of further monetary tightening. The single currency received a further boost yesterday as a gauge of consumer prices showed that Euro-zone inflation rose to 1.9% in March from 1.8% the previous month as we tick closer towards the Central Bank’s 2.0% ceiling. The European Central Bank has raised interest rates on seven occasions in this tightening cycle and with record low unemployment combined with rising economic growth, there remains a significant risk that inflation will continue to accelerate and prompt the ECB to raise interest rates in the short-to-medium term. In terms of economic data, the Euro may continue making gains this morning as German investor confidence probably rose to the highest level in nine months in April. The German based ZEW index is expected to increase to a reading of 10 this month, which provides further evidence that the economy is weathering the effects of a U.S slowdown and a strong Euro.
Daily Foreign Exchange Rate Forecast – The Pound slumped below $1.54 against the U.S Dollar yesterday
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