Just to re-cap from last week, the Dollar received an unexpected boost on Friday as the U.S Current Account deficit narrowed by much more than forecast in the first quarter, dropping from a record high in the previous three months, led by a modest improvement in the Trade Deficit. There is a sparse supply of data released this week, both in Europe and the States, and yesterday the Dollar made further gains against the majors, firming 0.6% against the Euro and the Pound as the market has now fully priced in a rise in U.S interest rates at the end of this month and forecasters have already begun speculating that an August rate rise is on the cards. However, the aggressive and consistent monetary tightening in the States is beginning to wane on consumer sentiment and further evidence of this is expected in the Housing data released this afternoon where activity and prices have been cooling since the 33-high in January, dropping by 19.4% in just over five months. Therefore, as a direct result of higher interest rates, U.S housing starts is widely expected to decline in May to 1.84 million.
A survey conducted by the Bank of England has showed that UK Inflation expectations for the next 12 months have dropped from February with prices expected to rise 2.5%. The governor of the BoE, Mervyn King, reiterated earlier this month that wage pressures were muted and that inflation expectations were not yet a “serious concern” for the Bank, although it would be monitored closely. The highlight of this week will undoubtedly be the minutes of the June MPC meeting on Thursday where the BoE kept UK interest rates at 4.50% for the tenth month in succession but it will be interesting to see if anymore members have joined David Walton in recommending that the bank raise interest rates to calm the threat of rising inflation. There is some significant data released in the UK this week with the CBI industrial trends survey widely expected to show continued improvement in the Manufacturing sector, although the increase in global energy costs and raw materials may have a negative impact.
There is a short supply of significant economic data released in the Euro-zone this week and the market has been relatively unchanged, hovering around 1.4650 against the Pound despite German Producer Prices accelerating at the fastest pace in 24-years led by a sharp increase in global energy costs. Goods are 6.4% more expensive than at this point last year, which is the biggest year-on-year growth since June 1982. The ECB chairman, Jean-Claude Trichet, will testify to the EU parliament on Wednesday and his comments will be watched closely as the market looks for new direction with regard monetary tightening.
Data Released 20th June
UK 09:30 M4 Lending (May)
U.S 13:30 Housing Starts (May)
written by Adam Solomon
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