The Pound failed to test the $2.00 level yesterday and by the close of trading last night had fallen 0.1% on the session despite a particularly hawkish rhetoric from the deputy governor of the Bank of England, Sir John Gieve. In the meeting from the BoE’s last policy meeting, Gieve along with the governor, Mervyn King, expressed concerns over rising inflationary pressures and actually voted to raise interest rates in June. In a speech in Guildford yesterday, the deputy governor emphasised that UK interest rates are still at a relatively low level and are helping to drive demand for loans and credit. The current benchmark lending rate of 5.50% is at the highest level in six years as inflation rose to a decade high in April and his comments yesterday will only serve to increase speculation that the MPC plan to raise rates again in July. However, the Pound failed to rally in the aftermath of his comments and actually traded lower following a report from the Confederation of British Industry. The survey showed that the pace of retail activity in the UK slowed significantly this month and provides an indication that consumer spending will continue to decline in response to higher borrowing costs. In terms of economic data, the focus today will fall on the Nationwide housing report, which is expected to show that prices remained relatively unchanged in June, rising to an annual rate of 10.5%.
The Euro failed to consolidate on the recent gains made against the Dollar yesterday and also remained largely unchanged versus the Pound following the distinct lack of economic data released in the Euro-zone. Nevertheless, the single currency may receive a timely boost this morning following the release of the M3 three-month moving average, which is expected to show that money supply into the Euro-zone actually rose to 10.5% in May. The chairman of the European Central Bank has been publicly criticised by other members of the governing council for placing too much emphasis on money supply as an indication of inflation. The ECB have raised interest rates on eight occasions since late 2005 despite consumer prices remaining below the 2.0% ceiling for the majority of 2007. Elsewhere, German unemployment may influence the market as the jobless rate is expected to remain unchanged at 9.2%, the lowest level since records began in 1990.
Initially, the Dollar made modest gains against the Pound yesterday but a report on U.S durable goods orders scuppered any chance of close under 1.9950 as concerns grow on the strength of the projected rebound in business investment. Demand for durable goods fell 2.8% in May to represent the biggest drop in four months following a revised 1.1% increase in April. The decline in orders combined with the prolonged slump in housing will threaten the pace of U.S economic growth this year and may force the Federal Reserve to revise initial growth forecasts. Nevertheless, the region manufacturing surveys including the Philly Fed index and the Empire State Index have showed that growth in factory production continues to expand and that may encourage policy makers to retain a tightening bias in the tonight’s FOMC rate announcement.
Data Released 27th June
UK 07:00 Nationwide House Prices (June)
GER 08:55 Unemployment (June)
EU 09:00 M3 / 3 Month Moving Average (May)
U.S 13:30 Final GDP / Deflator (Q1)
U.S 13:30 Initial Jobless Claims (w/e 23rd June)
U.S 19:15 FOMC Rate Announcement
written by Adam Solomon
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