The Euro remained relatively unchanged against the Pound yesterday despite German business confidence jumping to the highest level in 15-years, which provided yet further evidence that the ECB will need to lift interest rates as economic growth accelerates. The Ifo institute in Munich released it’s June confidence index, which actually rose to 106.8, the highest level since July 1991 despite forecasters anticipating a slight decline to 105.0. German companies have seemingly continued to increase investment even as the euros 6% gain against the dollar this year makes their goods less attractive to foreign investor’s and near-record oil prices have also added to costs. In addition, for the second day in succession a member of the ECB’s governing council has publicly announced his concerns over rising inflation. The comments from Nicholas Garganas have fuelled speculation that the central bank will be more aggressive with regard monetary tightening and he even speculated that the ECB could raise interest rates by more than 25 basis points over the coming months.
For a second consecutive day, there was no significant UK data released and the Pound has looked fairly stagnant in the market this week, dropping further against the Euro to trade well underneath 1.4500. However, there is some potentially positive data released this morning with the CBI Distributive Trades survey widely expected to show continued signs of growth in high-street trade this month as sales of England football shirts and big screen televisions peak in preparation for the World Cup. A significant pick-up in consumer confidence will undoubtedly lead to fresh calls for higher UK interest rates, which have been the topic of debate recently, particularly in the aftermath of David Walton’s untimely death.
The U.S Dollar has enjoyed a decent rally over the past couple of weeks, particularly against the Pound as we continue to trade around the 1.8200 level in the build up to the FOMC rate announcement tomorrow. The Federal Reserve are widely expected to lift interest rates by a further 25 basis points to take their benchmark rate upto 5.25%. However, their was a degree of uncertainty in the market yesterday as the Dollar reacted curiously to some positive economic data. U.S consumer confidence unexpectedly rose by more than forecast in June as an improvement in the labour market bolstered spending. The threat of higher interest rates and rising petrol costs have seemingly undeterred the American consumers although rising confidence may have a negative effect on consumer spending and therefore reduce the pace of economic growth this year. Elsewhere, sales of existing homes in the U.S fell to the lowest level since January this year, dropping by 1.2% to take the annual rate to 6.67 million, primarily due to higher mortgage rates.
Data Released 28th June
UK 11:00 CBI Distributive Trades Survey (June)
written by Adam Solomon
Related posts:
- The Euro advances as German Business Confidence jumps to a 15-year high
- The Euro gains against the Dollar as German Consumer Confidence rises to the highest level since 2001
- Sterling may come under some pressure with UK jobless claims expected to reach the highest level in over 4 years
- UK Unemployment Claims probably rose to the highest level in almost 3 years
- The Dollar fails to react despite New Home Sales rocketing to the highest level in 13 years
