We witnessed another quiet day in terms of market movement yesterday and Sterling continued to remain firm against the Euro despite a less than convincing report from the Chancellor, Gordon Brown, where he announced a record budget deficit for the public sector in the month of May. The UK deficit has expanded to £8.7 billion in the figures released for May, which is a £1 billion year-on-year increase. Public sector net borrowing including capital investment showed a deficit of £10 billion, the second highest on record. We may see some market movement this morning with the release of the minutes of the June MPC meeting and it is widely expected that the eight strong committee voted 7-1 in favour of keeping UK interest rates at 4.50%.
There has been a real short supply of significant data released in the euro-zone in the beginning part of this week and tomorrow is no exception but the chairman of the ECB will address the EU parliament’s economic and monetary affairs committee at midday and we will be watching closely for any news on the further tightening of euro-zone interest rates following the ECB’s decision to adopt a more measured and cautious approach earlier this month.
The U.S Dollar was given an unexpected boost yesterday as a sharp rebound in Home construction helped ease concerns that higher interest rates are beginning to wane on consumer sentiment. Housing Starts rose a greater than expected 5% to an annual rate of 1.957 million in May despite forecasters predicting a drop towards 1.84 million. As a result, the Dollar rallied against Sterling, briefly dropping under 1.8400 but any sustained Dollar gains were muted as concerns continue to surface that higher U.S interest rates will inevitably curb economic growth.
Data Released 21st June
UK 09:30 Minutes of June MPC meeting
UK Chancellor, Gordon Brown, gives Mansion House Speech
- the Dollar gains on speculation the Fed will raise interest rates after higher inflation and rising producer prices
- The Dollar’s seven day winning streak is shattered as the threat of higher interest rates may hamper economic growth
- The ECB only lift rates by 25 basis points while UK interest rates remain unchanged at 4.50%
- The Dollar gains as the Fed signal a further rise in U.S interest rates is likely this month
- Bernanke’s testimony seemingly washes away the possibility of a pause at 5% interest rates this month