The Pound has come under further pressure this week following a string of negative economic reports, which threatens to undermine the prospect of any further monetary tightening as the UK current account deficit widened to a 16-year high while economic growth was revised down in the last quarter. However, the Pound has remained largely unchanged in spite of the recent reports and yesterday received an unlikely boost as UK mortgage approvals came in higher than anticipated for February. According to a report from the Bank of England, UK mortgage lenders approved 119,000 home loans last month, which was significantly more than expected and provided an indication that demand in the property market is withstanding higher interest rates. There have been signs that growth in the housing market is slowing but a report from Nationwide yesterday showed that prices had risen for the fourteenth consecutive month in March and that may prompt the MPC to continue lifting interest rates this year. Elsewhere, Sterling managed to gain 0.1% against the Dollar after a survey from the Confederation of British Industry showed that growth in the UK retail sector was at its strongest level since December 2004. There is a distinct lack of economic data released in the UK this morning with the focus falling on the Gfk gauge of consumer confidence, which is expected to remain unchanged at a reading of -8.0 in March.
The Euro managed to make gains against the majors over the past trading session, firming 0.2% versus the Dollar and a further 0.1% against the Pound after reports in Germany showed a bigger-than-expected drop in unemployment. The jobless rate fell to 6.9% in February, which represents the lowest reading in over five years and provides a further indication that a strong labour market will be able to support economic expansion in the wake of the sales tax increase at the start of the year. The Euro may continue to make gains this morning amid a host of economic data released in the Euro-zone. Firstly, the flash estimate of European consumer prices is expected to show that inflation edged higher towards 1.9% in March, pushing towards the Central Bank’s 2.0% ceiling and any upward revisions will surely spark speculation of further monetary tightening. Elsewhere, the EC sentiment index will provide an indication of consumer and industrial confidence, which is expected to remain at an elevated level in March following the sustained fall in unemployment. Following the dramatic drop in German jobless claims this year, the European unemployment rate is expected to make new yearly lows in the figures released this morning with forecasts suggesting a fall towards 7.3%.
The Dollar failed to rebound against both the Euro and the Pound yesterday despite an upward revision in U.S economic growth in the fourth quarter. The final estimate of gross domestic product showed that the economy grew at an annual rate of 2.5% in the fourth quarter following the worst slump in housing construction in 17-years. The final revision of GDP compares with a 2.2% rate reported last month while a measure of inflation, keenly watched by the Federal Reserve, rose less than forecast. Recent reports have suggested that the slump in housing has yet to peak as the increase in subprime loan defaults and foreclosures threatens to deepen the slowdown and prevent the economy from expanding. The Dollar may receive a timely boost this afternoon following the release of the personal income and expenditure report, which represents the Federal Reserve’s preferred measure of U.S inflation. In a testimony to Congress this week, the chairman, Ben Bernanke, has reiterated that upside risks to inflation remain a concern to policy makers and the report this afternoon is expected to show that the PCE Deflator increased 0.2% in February. Elsewhere, the Purchasing Manager’s index into the current state of manufacturing in the Chicago region is expected to increase to a reading of 49.6 from 47.9 in February. While the Dollar may also rally following the release of the final estimate of the consumer sentiment in the Michigan area, which is expected to increase to a reading of 89.0 from 88.8 reported earlier this month.
Data Released 30th March
UK 10:00 Gfk Consumer Confidence (March)
EU 10:00 Flash HICP (March)
EU 10:00 EC Business Climate Index (March)
EU 10:00 EC Sentiment Index (March)
– Consumer / Industrial Confidence
EU 10:00 Unemployment Rate (February)
U.S 13:30 Personal Income / Expenditure (February)
PCE Deflator
U.S 14:45 Chicago PMI (March)
U.S 15:00 Michigan Sentiment (March Final)
U.S 15:00 Construction Spending (February)
written by Adam Solomon
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- The Pound advances against the Euro as UK mortgage approvals rises to a fresh three-year high
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- The Pound advances against the majors as UK mortgage approvals unexpectedly increases to a 2-year high
- The Pound strengthens against the majors as UK retail sales increase by more than expected in August
- The Pound rises against the Dollar to the highest level since early February
