The Dollar remained largely unchanged against the majors yesterday, holding just under the $2.00 level versus the Pound and closing last night 0.1% lower against the Euro following another round of poor U.S housing data. Sales of new homes fell 1.6% to an annual rate of 915,000 in May, which provides an indication that demand is still floundering as we enter the second half of the year. The report reflects recent surveys on existing home sales and housing starts, which have provided an insight into the faltering recovery in the sector as the Federal Reserve raised interest rates 17-times in under two years. Elsewhere, the Dollar also remained firm despite a separate index on U.S consumer confidence, which unexpectedly fell this month to the lowest level since August following higher fuel prices and growing concerns over the labour market. The outlook for consumer spending is worrying as confidence amongst the U.S consumer sank to the lowest level in 10-months while sentiment would also have a significant bearing on monetary policy. Nevertheless, despite the decline in housing and weaker consumer confidence data, the Dollar actually made modest gains in the aftermath of the reports amid speculation that the Fed will retain a tightening bias in the monthly FOMC rate announcement tomorrow.
The Euro remained little changed against the Dollar and the Pound yesterday despite a host of recent reports that is beginning to illustrate the impact of a strong a Euro on the rest of the economy. The single currency has risen to a record level against the Dollar this year, which is beginning to weigh on European export growth as demand from the U.S falters. The only notable release yesterday centred around the European current account balance, which showed that the surplus actually turned into a deficit in the month of April as the Euro rose from 1.3350 to peak at 1.3682 against the ailing U.S Dollar.
The Pound also failed to consolidate on the recent gains made against the majors yesterday, closing well under the $2.00 level for the second consecutive session while holding steady above 1.4800 against the Euro. Despite the apparent lack of UK economic indicators yesterday, the focus today will surely fall on Tony Blair’s departure from Downing Street after 10-years as Prime Minister. Meanwhile, the Pound may come under some pressure later this morning following a report from the Confederation of British Industry with the survey expected to show another sharp decline in the volume of retail activity. However, if the distributive trades balance came in ahead of initial forecasts, it would bolster expectations that UK interest rates may reach 6% before the end of the year. Recent comments from a number of Bank of England policy makers have indicated that the pace of consumer spending would need to moderate in order for UK inflation to hit the government’s 2.0% target.
Data Released 27th June
UK 10:00 CBI Distributive Trades Balance (July)
U.S 13:30 Durable Goods Orders (May)
written by Adam Solomon
Related posts:
- UK Consumer Confidence remains near the six month low in May according to the Nationwide Building Society
- The Pound remains unchanged against the majors as we gear up to the BoE interest rate announcement at midday
- The Pound remains relatively unchanged as UK inflation rises to the highest level in a decade
- The Dollar rises against the majors following a surprisingly strong report on the U.S housing market
- The Pound remains largely unchanged as UK producer price inflation accelerates in April
