The Pound rallied to the highest level in over a month versus the Euro yesterday, closing well above the 1.2700 level last night as the declining sentiment surrounding the European economy offsets the dramatic fall in the Nationwide house price index.
UK home values fell by the most since records began in 1991 as tighter credit conditions forced lenders to withdraw some of their best offers and starved the property market of buyers. The average cost of a home in Britain dropped 2.5% from April, the biggest monthly decline in 17-years, while prices fell 4.4% from this stage in 2007.
However, the Bank of England can’t afford to reduce interest rates at the present time despite warnings from the Governor, Mervyn King, that home values will fall further over the coming months and increase the risk that the economy will stall.
The Pound fell 0.3% against the Dollar yesterday, briefly trading under 1.9700 in early trade as the house price index coincided with a recent statement from the British Bankers’ Association, who said that mortgage approvals plunged 39% from this stage in 2007.
In addition, the Pound may come under further pressure this morning as the recent drop in retail sales may be reflected in the Gfk consumer confidence survey.
The negative tone of recent economic reports outside of Germany has weighed on Euro sentiment this week as French consumer confidence fell to a record low and offset the surprising resilience in the German labour market.
Inflation in Europe’s largest economy also increased faster than expected in April with consumer prices rocketing above 3.0% following the record increase in commodity prices. Nevertheless, an index of European retail sales showed that growth in the sector increased for the first time in three months in May after plunging to a record low the previous month.
The gauge of sales growth rose to 53.1, the biggest month-on-month increase in a year, while the survey vindicates the ECB’s refusal to lower interest rates and focus on the upside risks to inflation.
However, the Euro continued to decline against the Pound yesterday and also recorded modest losses versus the Dollar as the overall tone of recent economic data indicates that cracks are appearing in the Euro-zone economy.
The Dollar rallied against most of the 16 most actively traded currencies yesterday as U.S stocks gained, oil prices retreated and speculation increased that the Federal Reserve will raise interest rates by the end of the year.
The U.S currency rose to the highest level in three weeks against the Euro after the Commerce Department reported a 0.9% increase in the annual pace of economic growth.
The revised estimate of first quarter gross domestic product grew more than initial forecasts as a weak Dollar helped U.S exports climb to a record level but the number of Americans filing for jobless benefits rose to a four year high.
Nevertheless, the Dollar found some support after Federal Reserve Bank of Dallas President, Richard Fisher, said that the governing council would need to raise interest rates from the current 2.0% if consumer prices continue to accelerate at the current pace.
Data Released 30th May
U.K 10:30 Gfk Consumer Confidence (May)
EU 10:00 EC Business Climate (May)
EU 10:00 EC Economic Sentiment (May)
- Consumer / Industrial / Services
EU 10:00 Harmonised Consumer Price Index (Flash May)
The uncertainty surrounding the outlook of the UK economy has weighed on Sterling sentiment in recent weeks but the Pound rose back above the 1.9800 level against the Dollar yesterday while closing well above the resistance at 1.2600 versus the Euro.
The fundamental lack of UK economic data meant that the focus switched to the declining sentiment in Europe while the modest rebound in oil prices yesterday means that the Dollar struggled to consolidate on Tuesday’s upside move.
Euro and Dollar buyers would be well placed to work a stop order in the market as the latest housing numbers indicate that the slowdown in the sector is gathering in momentum. The Nationwide house price index will follow an earlier report from the British Banker’s Association, which showed that falling home values will hamper the UK economy and weigh on consumer spending.
That sentiment may also be reflected in a report from the Confederation of British industry tomorrow with the Distributive trades balance expected to emphasise the recent dip in retail sales.
The Euro finally broke out of its tight trading range against the Pound yesterday as a spate of weak economic data undermines the ECB’s staunchly hawkish stance on inflation while policy makers seem determined to keep rates at the highest level in six years.
Business confidence in Germany and France has dropped to the lowest level in at least a decade while consumer sentiment in Europe’s second largest economy unexpectedly dropped to a record low in May.
Fuel and food prices have soared higher this year, which prompted fishermen to widen their week-long blockade of ports to the English channel this week, and reports from Morgan Stanley predict that oil will increase to $150 a barrel over the coming months.
However, the ECB are unlikely to change their stance on policy as a separate report in Germany showed that consumer price inflation rose 3.0% from this stage in 2007, compared to just 2.6% in April.
Despite the modest increase in oil prices, the Dollar rallied against the Euro yesterday following reports that U.S durable goods orders unexpectedly rose in April, signalling that the outlook for the economy may improve towards the end of 2008.
The Dollar has declined to a record low against the Euro, which is helping lower the ever-widening trade deficit, while overseas demand is helping manufacturers cope with the surging cost of raw materials.
U.S exports are keeping the economy from falling into a recession as economic growth stumbles along at the slowest pace in seven years amid the worst housing slump in nearly twenty years.
The revised estimate for U.S gross domestic product will probably confirm that the economy grew 2.6% in the first quarter while the Dollar may come under some pressure as the weekly jobless numbers indicate that the number of Americans filing for unemployment benefits increased to 375,000 last week.
The Pound succumbed to weaker housing data on Monday and the UK currency recorded a two day slump against the Dollar yesterday after a separate report from the British Banker’s Association showed that mortgage approvals plunged 39% from this stage in 2007.
An earlier report from Hometrack Ltd showed a further decline in UK home values while the Financial Times reported that more than 20% of homebuyers with a poor credit history fell behind on their mortgage repayments in the first quarter of this year.
House prices have slipped for an eighth consecutive month in May and according to Mervyn King, the market is bracing itself for a further reduction over the coming months. The reports combined provide a measure of consumer confidence in the UK, particularly because household spending is largely dependent on borrowing with a high proportion of wealth tied up in property.
The Pound dropped to a low of 1.9718 by the close of trading last night while also recording losses against 14 out of the 16 most actively traded currencies. The worsening state of the UK housing market has added to signs that an economic slowdown will gather in momentum this year and despite speculation that interest rates won’t be reduced further, the Pound may struggle to make gains after falling 8.6% in value against the Euro in just five months.
Nevertheless, the Pound did actually record some modest gains against the Euro, briefly revisiting the resistance at 1.2600 after a spate of weak European economic data showed that consumer confidence in Germany and France fell by more than expected.
An index of sentiment fell to the lowest level in over two years in France, reflecting the surging cost of raw materials while speculation that oil will breach $150 a barrel this year continues to undermine confidence.
Concerns over supply, militant attacks in Nigeria and speculation that traders are manipulating the market has seen the price of oil more than double over the past year, although Crude oil fell as much as $3 yesterday as higher fuel costs sapped U.S demand.
The European Central Bank is under pressure to provide some relief to consumers and relent their hawkish stance on inflation while economic growth forecasts have declined significantly this year following tighter credit conditions and slowing overseas demand.
The decline in oil prices coincided with the Dollar’s upside move against the Pound yesterday while the U.S currency also made gains versus the Euro despite further evidence that the American economy is struggling to cope with rising prices and a worsening housing slump.
The Conference Board’s gauge of consumer confidence slumped to the lowest level since 1992 as the two year decline in the property market showed no signs of abating. The correlation between falling home values and dwindling consumer confidence is by no means a surprise but a separate report the Commerce Department showed an unexpected increase in new home sales.
Although sales increased 3.3% from the lowest level in 17-years, the report also showed that readings for the previous month were revised down as prices dropped in the first quarter by the most in at least 20-years.
Following on from last week, the Pound rose to the highest level in almost a month versus the Dollar after oil prices peaked at a record $135 a barrel while a smaller than expected decline in UK retail sales prompted speculation that the economy will pull through the credit slump.
The dramatic increase in energy prices has seen consumer price inflation breach the government’s 3.0% limit in the past month and subsequently the Bank of England will have little choice but to keep interest rates on hold for the time being.
The Market holiday in England and the U.S means that there was little activity but the Pound came under some pressure after an industry survey showed that house prices declined for an eighth straight month in May.
According to the report from Hometrack Ltd, the average cost of home in Britain slipped a further 0.5% this month and a recent statement from the BoE Governor, Mervyn King, indicated that home values are likely to continue to decline over the coming months.
The Bank of England can’t afford to reduce interest rates while tighter lending conditions have forced lenders to increase mortgage rates and even withdraw some of their best offers altogether.
The Pound dropped to an intraday low of 1.9772 before bouncing back above 1.9800 by the close of trading last night but the resolve in Sterling will be tested this week amid further reports on falling house prices and weakening consumer sentiment.
The Euro has remained within a tight trading range against the Pound but the single currency took advantage of broad Dollar weakness to rise to a near month high yesterday amid a packed week of European economic indicators.
Preliminary estimates for the German economy showed that growth remained resilient in the first quarter despite a strong Euro and slowing demand for European based exports. Elsewhere, the EC sentiment index is expected to show that industrial and consumer confidence declined modestly in May but rising commodity prices means that inflation probably jumped to 3.5% from April.
The Dollar has struggled against the majors recently despite the sharp shift in tone among many economists who believe that the U.S economy is through the worst of the credit crisis and the Federal Reserve can keep interest rates steady after an aggressive period of easing.
However, the dramatic increase in oil prices correlates with the Dollar’s decline and crude oil rallied for a second day amid reports of a militant attack in Nigeria while OPEC’s president ruled out an increase in supplies to provide some much needed relief to the market.
Elsewhere, the Dollar may come under pressure as a report this afternoon is expected to show that the housing slump deepened and consumer confidence fell to the lowest level in 15-years .
Following on from last week, the Pound rose to the highest level in almost a month versus the Dollar after oil prices peaked at a record $135 a barrel while a smaller than expected decline in UK retail sales prompted speculation that the economy will pull through the credit slump.
The dramatic increase in energy prices has seen consumer price inflation breach the government’s 3.0% limit in the past month and subsequently the Bank of England will have little choice but to keep interest rates on hold for the time being.
The Market holiday in England and the U.S means that there was little activity but the Pound came under some pressure after an industry survey showed that house prices declined for an eighth straight month in May.
According to the report from Hometrack Ltd, the average cost of home in Britain slipped a further 0.5% this month and a recent statement from the BoE Governor, Mervyn King, indicated that home values are likely to continue to decline over the coming months.
The Bank of England can’t afford to reduce interest rates while tighter lending conditions have forced lenders to increase mortgage rates and even withdraw some of their best offers altogether.
The Pound dropped to an intraday low of 1.9772 before bouncing back above 1.9800 by the close of trading last night but the resolve in Sterling will be tested this week amid further reports on falling house prices and weakening consumer sentiment.
The Euro has remained within a tight trading range against the Pound but the single currency took advantage of broad Dollar weakness to rise to a near month high yesterday amid a packed week of European economic indicators.
Preliminary estimates for the German economy showed that growth remained resilient in the first quarter despite a strong Euro and slowing demand for European based exports. Elsewhere, the EC sentiment index is expected to show that industrial and consumer confidence declined modestly in May but rising commodity prices means that inflation probably jumped to 3.5% from April.
The Dollar has struggled against the majors recently despite the sharp shift in tone among many economists who believe that the U.S economy is through the worst of the credit crisis and the Federal Reserve can keep interest rates steady after an aggressive period of easing.
However, the dramatic increase in oil prices correlates with the Dollar’s decline and crude oil rallied for a second day amid reports of a militant attack in Nigeria while OPEC’s president ruled out an increase in supplies to provide some much needed relief to the market.
Elsewhere, the Dollar may come under pressure as a report this afternoon is expected to show that the housing slump deepened and consumer confidence fell to the lowest level in 15-years .
The Pound surged to the highest level in the three weeks against the Dollar yesterday as oil prices peaked and a UK government report showed that retail sales declined by less than anticipated in April.
A dramatic slump in house prices, rising inflationary pressures and the impact of the credit crunch has weighed on consumer spending with sales falling for a second consecutive month in April.
Nevertheless, the Pound rallied against the Dollar, breaching the 1.9800 barrier by the close of trading last night, as the decline in sales was significantly less than forecast and increased optimism that the resilience in spending will pull the economy through the housing slump.
However, the Governor of the Bank of England, Mervyn King, said last week that the economy was in danger of slipping into recession as consumer confidence fell to the lowest level since 1992.
The Pound also rallied against the Euro yesterday, rising towards 1.2600 at the close last night as faster inflation saw the probability of a June rate cut falling to just 1%. The dramatic shift in sentiment saw the Pound rally against 15 out of the 16 most actively traded currencies while the focus will switch to the final estimate of UK gross domestic product with economic growth expected to remain unchanged at 2.5% in the first quarter.
The Dollar’s dramatic intraday slide against the Pound saw the U.S currency plummet to the lowest level since May 2nd yesterday despite speculation that the Federal Reserve will raise interest rates by the turn of the year.
The minutes from the last FOMC meeting showed that policy makers viewed an April rate cut as a “close call” while a recent spate of hawkish comments from a number of Fed officials indicates that policy makers are ready to focus on the upside risks to inflation.
The Dollar snapped a two day losing streak against the Euro yesterday as oil prices finally retreated amid signs that the recent 16% increase isn’t justified by mounting stockpiles and steady demand.
As the price of crude oil breached $135 a barrel early yesterday, OPEC ministers admitted that they were powerless to stop the move despite reports that the rise in prices had more to do with institutional investors coming into the market rather that the issue of supply.
The correlation between rising oil prices and the decline in the Dollar has been increasingly apparent over the past week but the $2 drop in prices yesterday may see the U.S currency resume the upside momentum against the majors.
In terms of economic data, the Dollar shrugged off an earlier report on the U.S housing market as prices fell 3.1% in the first quarter while the weekly jobless numbers indicated that a drop in claims could spur payrolls.
The Pound extended its run of gains against the Dollar yesterday amid fears that oil prices will breach the $150 a barrel this year while the annual pace of UK inflation will continue to accelerate and force the Bank of England to keep interest rates unchanged over the coming months.
The minutes from the Central Bank’s last policy meeting showed that the MPC voted 8-1 in favour of keeping interest rates on hold in May with the vast majoring of the nine-strong panel arguing that a further cut would risk letting inflation entrench the economy.
The tone of the Bank’s quarterly inflation report paved the way for the hawkish outlook on inflation despite fears that the economy will slip into recession while David Blanchflower was the sole voice for a rate reduction.
The Pound rose 0.2% versus the Dollar following the release of the minutes but the UK currency slipped under 1.2500 against the Euro as the buoyancy of the Euro-zone economy means that policy makers will keep interest rates at the highest level in six years.
Although the MPC appear focused on the upside risks to inflation, a division is brewing within the committee on the extent of the economic slowdown but with consumer prices already at the government’s limit, policy makers are limited in their position to cut interest rates.
The focus this morning will fall on the UK retail sales report and a further dip in consumer spending could end the Pound’s unexpected rally against the Dollar while the CBI industrial trends survey may show a modest pickup in activity levels.
The renewed sense of optimism surrounding the prospects for the European economy has seen the Euro register significant gains against the Pound while the single currency finally broke out of a month long trading range versus the Dollar amid an unexpected rise in German business confidence.
The Ifo sentiment index showed that the survey increased in May as companies pulled through the record surge in oil prices and the dramatic appreciation in the value of the Euro. The business climate report rose to a reading of 103.5 in May despite forecasts of a further decline towards 102.0 and the Euro jumped almost a cent against the Dollar as the report reduced the chances of an ECB rate cut.
The Federal Reserve and the Bank of England have both slashed interest rates in an attempt to boost growth but the resilience of the European economy has even prompted calls governing council member Alex Weber for rates to increase from the current 4.0%.
The price of oil escalated to a fresh record high of $134 a barrel yesterday and the Dollar subsequently extended its biggest decline against the Euro since mid March while a report on the deterioration of the U.S housing market showed that mortgage applications plunged 7.8% last month to equal the lowest number this year.
Despite the improvement in some sections of the economy, the outlook for growth is still bleak as the Fed expects unemployment to increase dramatically over the coming months. In a statement last week, the chairman of the Reserve Bank, Ben Bernanke, warned the downside risks to growth are far from over while the latest housing market numbers indicate that any recovery in the sector could be fragile.
Nevertheless, the Fed still expect economic growth to rebound in the second half of the year as the economy absorbs the robust cut in U.S interest rates but the Dollar may come under pressure in the short-term as the weekly jobless report shows that claims rose to 375,000 last week.
Following the fundamental lack of UK economic data released yesterday, the Pound took advantage of broad Dollar weakness to record the biggest intraday rally in over a month and close above 1.9600 last night.
The UK currency also made significant gains against the Canadian and Australian Dollar as the market began to absorb the Bank of England’s quarterly inflation report and traders scaled back the probability of an interest rate cut in the foreseeable future.
The minutes from the Central Bank’s last policy meeting are released this morning and the focus will fall on the voting pattern of the nine-strong committee while policy makers are expected to be divided in their decision to keep interest rates unchanged in May.
The Pound’s unexpected and short-term upside momentum is unlikely to see the UK currency extend its rally much beyond the current levels and it is no coincidence that the move against the Dollar coincided with the sharp spike in the price of oil.
The Euro has remained in a tight trading range against the Pound this week but the single currency rose above 1.5600 versus the Dollar yesterday and may set a new record high over the coming months as a report from the Bank of Tokyo-Mitsubishi showed that surging global trade will support the world economy and keep the ECB from cutting interest rates.
The Euro rose 1.1% against the Dollar by the close last night and reached the highest level in nearly a month despite separate reports that German investor confidence unexpectedly fell for a second month in May.
The ZEW index showed that investor and analyst expectations declined to the lowest level in 15-years as rising inflation, a strong Euro and the impact of the credit crunch compromises the outlook for economic growth.
However, the ECB are reluctant to change their stance on monetary policy after a report yesterday showed that German producer prices accelerated at the fastest pace in nearly two years last month as the rising cost of raw materials add to concerns over inflation.
The volatile price action surrounding the Dollar yesterday saw the U.S currency record sharp losses against both the Pound and the Euro as the price of oil rocketed to a fresh record high at $129.60 a barrel.
The correlation between escalating crude oil prices and the decline in Dollar sentiment is becoming increasingly apparent and the sharp move yesterday can be attributed to comments from the billionaire hedge-fund manager, Boone Pickens, who said that oil will reach $150 a barrel this year.
The dramatic increase in commodity prices has derailed the Dollar’s upside move for the time being but a report from the U.S labour market yesterday showed that factory prices rose almost twice as much as initial forecasts.
The gauge of inflation shows that a slowing economy is making it difficult for manufacturers to pass on the rising cost of raw materials to the consumer, although prices have risen by the fastest annual rate since 1991.
Rising inflationary pressures means that the Federal Reserve are unlikely to cut interest rates beyond the current 2.0% and that sentiment was emphasised in a statement yesterday by the Vice Chairman, Donald Kohn, who said that the economy should strengthen as the Fed’s aggressive easing of rates is absorbed.
The Pound failed to rally against the majors today, dropping back under 1.9500 versus the Dollar, despite a surprisingly positive report on the UK housing market, which showed that prices actually rose 1.2% in May as homeowners refused to succumb to the worsening market environment.
According to the report from Rightmove plc, the average selling price for a home in Britain rose to £242,500 this month with prices rising to 2.2% on the year but the property website warned that the increase was because homeowners were not realistic about the current state of the UK housing market.
The Bank of England have slashed interest rates on three occasions since December and the Governor, Mervyn King, has recently said that prices are set to fall further as the crisis in credit deepens.
In the statement that followed the BoE’s quarterly inflation report, King painted a gloomy picture for the UK economy going forward and said that the decade long economic boom is coming to an end.
Home values have dropped for the first time since 1996 as lenders impose tightening lending conditions and raise mortgage rates to the highest level in eight years. However, the Bank of England can’t afford to cut interest rates any further as inflation threatens to spiral out of control after rising to the government’s 3.0% limit in April.
The declining sentiment surrounding the Euro-zone economy saw the Euro fall against the Dollar this morning while the single currency also failed to rally against the Pound despite yet another round of hawkish commentary from ECB officials.
The President of the Central Bank, Jean-Claude Trichet, thought it was necessary to remind the market about the dangers of rising inflation and likened the recent surge in food and energy prices to the shocking rise in oil during the 1970s.
Aside from the resilience of the German economy, many areas of the Euro-zone have been struggling to cope with higher prices but Trichet believes that a rate cut now could lead to more serious problems going forward.
The price action surrounding the Euro in the aftermath of his comments seems to suggest that traders are becoming immune to the seemingly endless stream of hawkish statements from ECB officials while the worsening economic data indicates the gradual decline of the Euro-zone economy.
Nevertheless, the Euro may find some support against the Pound in the morning as German producer prices may show upside risks to price stability that somewhat vindicate the Central Bank’s hawkish stance on inflation.
The renewed sense of stability surrounding the U.S economy saw the Dollar make further gains against the Pound while also rising by the most in four days versus the Euro after an index of leading economic indicators unexpectedly rose in April.
The Conference Boards’s index increased 0.1% to record the first month-on-month gain since October 2006 and the Dollar rallied amid speculation that the economy has pulled back from the brink of recession.
The report vindicates Hank Paulson’s claim that the U.S economy is through the worst of the credit slump but a recent statement from the chairman of the Federal Reserve, Ben Bernanke, reminded the market that further market volatility may undermine the future outlook for economic growth.
Following on from last week, the renewed appetite for the Pound saw the UK currency bounce back from an intraday low of 1.9363 versus the Dollar following the release of the Bank of England’s quarterly inflation report.
The tone and language used by the Governor, Mervyn King, showed the policy makers are more concerned with the outlook of inflation rather than the diminishing prospects for economic growth.
The statement followed earlier reports on UK producer and consumer prices, which showed that the annual pace of inflation breached the government’s 3.0% limit in April.
The overwhelming rise in raw material costs combined with the sharp increase in food and energy prices means that manufacturers have little choice but to pass on higher costs to the consumer.
The Bank’s quarterly inflation report has all but ended the speculation surrounding a June rate cut and the Pound has rallied against the majors despite separate reports that the UK labour market deteriorated for the fourth straight month in April.
The focus this week will fall on the minutes from the Central Bank’s last policy meeting where the market will be looking for any fresh indication on monetary policy while the retail sales report may undermine Sterling sentiment and emphasise the gloomy outlook for the economy.
The Euro took advantage of broad Dollar weakness and staged a strong rally against it’s U.S counterpart while also recording modest gains versus the Pound despite reports that the European trade balance swung into a deficit in March.
A strong Euro is weighing heavily on Euro-zone exports and weakening demand from overseas is likely continue over the coming months with the economy expected to slow to just under 2.0%. A number of ECB officials have continued to express their discontent over the current level of inflation with Liberscher indicating that prices rising above 3.0% are unacceptable.
The staunchly hawkish stance of many ECB policy makers combined with the resilience of the German economy may mean that the Central Bank will refrain from cutting interest rates this year and the Euro may continue to make gains amid a packed week of Euro-zone economic data. The recent revival in Dollar sentiment was severely tested on Friday as the U.S currency fell by the most against the Euro since mid March following a bigger-than-expected drop in the Michigan sentiment survey.
The report showed that consumer confidence in the region had dwindled while record high oil prices raised concerns that the U.S economy will stall. The Dollar declined against the Euro and also bounced off the yearly low at 1.9366 versus the Pound amid fears that the crisis in credit is far from over.
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