The Pound made robust gains against the majors yesterday, rising 0.2% versus the Euro and by the close of trading last night had broken through the $2.00 barrier against the Dollar following a stronger-than-expected report on UK house prices. The Nationwide index showed that prices actually doubled expectations in June despite initial forecasts for prices to remain relatively unchanged at 10.5%. The Bank of England are scheduled to decide next week on UK interest rates and the report yesterday will increase the chance of a further quarter-point increase in July. Elsewhere, the Confederation of British Industry released their monthly survey on the pace of retail activity over the past month while the British Bankers’ Association reported that mortgage approvals rose unexpectedly in May. The Pound continued to make gains after the governor of the Bank of England publicly stated that the balance for inflation risks remain to the upside and gave a strong indication that a further quarter-point increase would to little to harm domestic consumption. In terms of economic data, the positive sentiment surrounding the Pound may continue this morning ahead of a report on UK consumer confidence and the final estimate of gross domestic product.
The Euro lost ground for the fourth consecutive trading session against the Dollar yesterday and also declined against the Pound following a mixed bag of European economic data. The M3 three month moving average was significantly higher than anticipated and showed that money supply into the Euro-zone threatens to increase the already persistent inflationary pressures. The chairman of the European Central Bank, Jean-Claude Trichet, has been criticised by a number of members from the governing council for placing too much emphasis on the impact on money supply on monetary policy. Nevertheless, the Euro continued to decline against the majors and may come under further pressure this morning following a host of economic reports. The EC sentiment index is expected to show that industrial and consumer confidence fell modestly in June as higher interest rates combined with the VAT increase at the start of the year begins to weigh on households’ disposable income.
The Dollar crashed through the $2.00 level against the Pound yesterday but continued to make modest gains versus the Euro following a particularly hawkish statement from the chairman of the Federal Reserve, Ben Bernanke. Following the Fed’s decision to hold U.S interest rates at 5.25%, the accompanying statement seemed to suggest that policy makers had real concerns that inflation may fail to moderate over the coming months. It was the eighth consecutive month that U.S rates remained unchanged and speculation has been growing that the Fed would need to retain a tightening bias towards the end of the year as the economy continues to show signs of growth. The Dollar may also find a reprieve this afternoon as U.S consumer spending probably rose in May as higher wages helped supplement the rise in fuel costs.
Data Released 29th June
UK 09:30 Mortgage Approvals (May)
UK 10:00 Consumer Confidence (June)
UK 09:30 Final GDP (Q1)
EU 09:30 Flash HICP (June)
EU 09:30 EC Business Climate Index (June)
EU 10:00 EC Sentiment Index (June)
– Industrial/Consumer Confidence
U.S 13:30 Personal Income / Expenditure (May)
U.S 14:45 Chicago PMI (June)
U.S 15:00 Michigan Sentiment (June Final)
U.S 15:00 Construction Spending (May)
written by Adam Solomon
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- The Dollar breaks 1.8500 against Sterling and the Euro gains ahead of the ECB announcement
- The Dollar rallies against the majors, dropping through the $2.00 barrier for the first time in a week
- The Pound drops through the $2 Dollar barrier and declines for the third day in a row
- The Pound consolidates above the $2 barrier as inflation quickens to 3.1% year-on-year in March
