The lack of appetite for the Pound continued yesterday despite the relatively positive CBI Distributive Trades Survey, which maintained it’s 18-month high in June as the net balance of 9 percentage points was the same as last month and the highest since December 2004. The apparent pick up in UK retail sales may prove significant in deciding monetary policy with the Bank of England expecting economic expansion to gather momentum in the second half of the year, particularly since the cut in interest rates last August had a positive effect on consumer spending, which accounts for two thirds of the economy. There is some important UK data released this morning with the nationwide house price index widely anticipated to show continued signs of growth in the housing market while elsewhere the BoE’s monthly report on mortgage approvals is expected to show a modest increase in May, jumping to 110,000 from 106,000 in April.
The Euro has been gaining in recent weeks thanks largely to renewed calls from several members of the ECB to act more aggressively to monetary tightening, which has led to speculation that the central bank will lift interest rates again before the next scheduled rise in August. However, the market was fairly quiet yesterday amid a sparse supply of economic data released but we can expect to see some movement in the figures this morning with the Euro-zone M3 money supply expected to show continued signs of growth in May from 8.8% the previous month while elsewhere German unemployment is predicted to be unchanged in June at 11.0%.
Yesterday afternoon, the Dollar continued to strengthen further against the Pound and closed around 1.8150 last night as we draw nearer to the FOMC rate announcement this evening. It is widely anticipated that the Federal Reserve will lift borrowing costs by 25 basis points for the 18th month in succession. However, there has been calls for a more aggressive tightening of U.S interest rates from some sectors and it will be interesting to see if Ben Bernanke indicates that a further change in policy is on the horizon. Therefore, the inflationary data released this afternoon in the States will undertake added significance and it will be interesting to see if U.S Gross Domestic Product in the first quarter has continued to gather momentum. The Fed’s preferred measure of inflation is released tomorrow with the Core PCE deflator, which is widely expected to rise by 0.2% in May, leaving the year-on-year growth rate unchanged at 2.1%.
Data Released 28th June
EU 09:00 M3 / 3 Month Moving Avg (May)
UK 09:30 Mortgage Approvals BoE (May)
UK 07:00 Nationwide House Prices (June)
GER 08:55 Unemployment (June)
U.S 13:30 Initial Jobless Claims (w/e 24th June)
U.S 13:30 GDP / Deflator (Q1 Final)
U.S 19:15 FOMC Rate Decision
written by Adam Solomon
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