The Pound came under intense pressure against both the Euro and the Dollar yesterday and the general consensus is that we could see further downside movement particularly after the damaging omission from the UK office of national statistics yesterday. The ONS announced that a significant error had been made in one of their inflation models, leading to an incorrect measure of UK national income in the second quarter. Originally, wage growth was estimated at 6%, which would of been one of the key reasons for the Bank of England raising UK interest rates last month. However, in the revised estimate yesterday the figure came in at 4.8%, easing inflation concerns and severely dampening the chances of a further rise in UK rates before the turn of the year. As a result, the Pound declined against the Euro by nearly a whole cent on the session to close well under 1.4800 and we saw further losses against the dollar following a particularly positive report on the U.S housing market earlier this week. There is some significant economic data released this morning in the UK, which is unlikely to revive Sterling sentiment with mortgage approvals widely expected to remain unchanged at 120,000 in August while consumer confidence may show a marginal improvement this month.
The Euro has been making substantial gains against the Pound after reaching a yearly low at 1.4950 earlier this week and the positive sentiment continued yesterday as German unemployment unexpectedly declined in August ahead of the ECB interest rate announcement next week. From a technical point of view, the rejection of the break above 1.4910 leaves us with a particularly negative outlook going forward after we failed to bounce back after such a sharp reversal. Therefore, we can expect the Euro to make further gains against the Pound and there is some significant economic news released in the Euro-zone this morning that could potentially influence the ECB’s decision to raise rates beyond October. Firstly, the EC sentiment index, which analyses industrial and consumer confidence in the region is widely expected to remain at an elevated level this month while the flash estimate consumer price index may show sustained inflationary pressures, leading to further speculation that the ECB will need to continue raising interest rates.
The Dollar has proceeded to make significant gains over the Pound this week following an unexpected pick-up in the housing sector for the month of August, which has rekindled speculation that the Federal Reserve may raise U.S interest rates once more before the turn of the year. Therefore, the economic data released this week has taken on added significance and yesterday the Dollar remained firm against the majors despite a less than convincing report on the final estimate for second quarter GDP. U.S economic growth slowed to 2.6% from the first quarter, which was well under expectations as a considerable drop in homebuilding and consumer sentiment dampened expectations. The U.S economy expanded at 5.6% in the first three months of the year and the subsequent slowing of the economy can be attributed to a significant rise in oil prices and the Fed’s prolonged campaign of 17-consecutive rate hikes in little under two years. Elsewhere, the weekly jobless report showed that the number of people out of work and claiming benefits actually fell in the week ending the 23rd of September. Over the course of this week, the Dollar has improved by almost 4 cents against the Pound and overnight we managed to break through the trend support at 1.8750 with the major support level at 1.8600, the low from the previous downside move. There is a host of significant economic data released in the States this afternoon with the report on personal income and expenditure taking centre stage and if the Fed’s preferred measure of inflation shows a modest increase for the month of August, we can expect the Dollar to make further gains as speculation intensifies over a possible rate hike before the year-end. In addition, the final estimate of the Michigan sentiment is also released today and the consensus forecast is for a modest rise this month while manufacturing activity in the Chicago area may decline from a reading of 57.1 in August to 55.0 this month.
Data Released 29th September
UK 09:30 Mortgage Approvals (August)
UK 10:30 Consumer Sentiment (September)
EU 10:00 EC Sentiment Index (September)
– Industrial / Consumer Confidence
EU 10:00 Flash Consumer Price Index (September)
U.S 13:30 Personal Income & Expenditure (August)
– Core PCE Deflator
U.S 14:45 Michigan Sentiment (September Final)
U.S 15:00 Chicago PMI (September)
written by Adam Solomon
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