The pound recovered the losses it suffered against the single currency on Monday in choppy trading yesterday, despite official statistics revealing that retail prices had fallen for the first time in almost half a century, and ZEW releasing a better than expected economic sentiment survey in Germany. The Retail Price Index in the UK hit -0.4% year-on-year in March, which is the first time inflation has been negative since 1960, whilst the Consumer Price Index – the government’s official measure of inflation – also fell to 2.9%, although remains above the government target range. Despite the inflation figures, a hawkish member of the Monetary Policy Committee, Andrew Sentance, said that he could see glimmers of recovery in the economy.
Markets are bracing themselves for today’s budget, where Alistair Darling will have to admit the economy is set to contract 3-3.5% this year – a staggering three times worse than what he forecast just five months ago. Investors will also listen carefully to how the chancellor is planning to tackle the mounting debt problem the UK is facing up to.
There are no major economic announcements due in the eurozone today, whilst there is a plethora of data being released in the UK alongside the budget. The Bank of England minutes will be of particular interest, whilst unemployment figures, money supply, and public borrowing figures are also released.
Wednesday, 22 April 2009
Pound strengthens against the US dollar
The pound strengthened against the US dollar yesterday, rising by 1.36 cents from a near three week low as UK CPI inflation data suggested that the economy had not yet fallen into deflation. The Retail Price Index showed that for the first time since 1960 UK annual inflation was negative at -0.4% for March, down from zero in February, whilst the Consumer Price Index fell to 2.9%, down from 3.2% over the same period.
Despite a rise from $1.4537 to $1.4673 over the day, sterling’s gains over the US dollar were hampered by continued investor wariness ahead of Chancellor Alistair Darling’s budget announced later today. Speculation he may have to raise taxes in order to plug a multi-billion pound borrowing black hole have raised concerns, and he is expected to revise his growth forecast to -3.0% to -3.5% for the year. New Bank of England Monetary Policy Committee member Paul Fisher’s evidence to Parliament also affected investor confidence, as he warned that further weakness in global economic demand could hamper the UK’s growth prospects going forward. He also said that an extension of the Bank’s quantitative easing program and a foreign exchange intervention could not be ruled out but were highly unlikely. His downbeat predictions, together with the other data released during the day, meant the FTSE finished slightly down at -3.4 points, but losses were limited by some good news. Tesco, Europe’s second-biggest retailer, announced an underlying annual pre-tax profit of £3.13bn, a 10% improvement on the previous year, whilst Burberry, the UK’s largest publicly traded luxury-goods company, reported better-than-expected revenue figures. In America, lacklustre results announced by the Bank of New York Mellon Corp weighed on equity markets initially, as investors speculated that the worst is not yet behind the US economy, although the Dow Jones finished the day up 127.83 at 7969.56.
There is some very important data being released today on both sides of the Atlantic. The Bank of England’s Minutes from last month’s MPC interest rate meeting are released at 09.30 BST, as is the ILO Unemployment Rate, whilst from 12.30 BST the UK’s budget for the 2009/10 fiscal year will be announced by Chancellor Alistair Darling. In America, the Mortgage Bankers Association’s Mortgage Application data is announced at 12.00 BST, and at 15.00 BST the Month-on-Month Housing Price Index figures for February are released.
Despite a rise from $1.4537 to $1.4673 over the day, sterling’s gains over the US dollar were hampered by continued investor wariness ahead of Chancellor Alistair Darling’s budget announced later today. Speculation he may have to raise taxes in order to plug a multi-billion pound borrowing black hole have raised concerns, and he is expected to revise his growth forecast to -3.0% to -3.5% for the year. New Bank of England Monetary Policy Committee member Paul Fisher’s evidence to Parliament also affected investor confidence, as he warned that further weakness in global economic demand could hamper the UK’s growth prospects going forward. He also said that an extension of the Bank’s quantitative easing program and a foreign exchange intervention could not be ruled out but were highly unlikely. His downbeat predictions, together with the other data released during the day, meant the FTSE finished slightly down at -3.4 points, but losses were limited by some good news. Tesco, Europe’s second-biggest retailer, announced an underlying annual pre-tax profit of £3.13bn, a 10% improvement on the previous year, whilst Burberry, the UK’s largest publicly traded luxury-goods company, reported better-than-expected revenue figures. In America, lacklustre results announced by the Bank of New York Mellon Corp weighed on equity markets initially, as investors speculated that the worst is not yet behind the US economy, although the Dow Jones finished the day up 127.83 at 7969.56.
There is some very important data being released today on both sides of the Atlantic. The Bank of England’s Minutes from last month’s MPC interest rate meeting are released at 09.30 BST, as is the ILO Unemployment Rate, whilst from 12.30 BST the UK’s budget for the 2009/10 fiscal year will be announced by Chancellor Alistair Darling. In America, the Mortgage Bankers Association’s Mortgage Application data is announced at 12.00 BST, and at 15.00 BST the Month-on-Month Housing Price Index figures for February are released.
Euro up marginally against the US dollar
The euro strengthened slightly against the US dollar yesterday following comments by US Treasury Secretary Timothy Geithner, who gave a positive view of the US banking sector. Geithner stated on Tuesday that US banks are well capitalized, showing an optimistic view that the banks are over the worst of the recession. He also said that the Obama administration has enough money, through the Troubled Asset Relief Program (TARP), to deal with any further problems that may arise. This resulted in investors flocking to riskier currencies as opposed to the safe haven of the dollar.
Additionally, a surprisingly strong rise in German investor confidence in April gave the euro a boost while the dollar weakened against most major currencies. Germany's ZEW economic sentiment index showed its sixth month of gains, jumping to a positive 13% from a negative 3.5%. April's reading is the first positive one since July 2007. The euro was up at $1.2944 in late US trading from $1.2924 on Monday.
There are no significant announcements taking place in the US or eurozone today, but traders will be watching the release of the budget report in the UK closely as this is likely to have an effect on currencies across the board.
Additionally, a surprisingly strong rise in German investor confidence in April gave the euro a boost while the dollar weakened against most major currencies. Germany's ZEW economic sentiment index showed its sixth month of gains, jumping to a positive 13% from a negative 3.5%. April's reading is the first positive one since July 2007. The euro was up at $1.2944 in late US trading from $1.2924 on Monday.
There are no significant announcements taking place in the US or eurozone today, but traders will be watching the release of the budget report in the UK closely as this is likely to have an effect on currencies across the board.
Kiwi dollar holds steady
The New Zealand dollar managed to hold steady yesterday, as initial sharp losses in equity markets, caused by concerns over the banking sector, were partially clawed back after comments by the US treasury that banks were well capitalised. This helped bank shares rally, and reinforced a recent pattern of equities seesawing as sentiment on the banking sector rises and falls. With little data due domestically the kiwi will continue to be guided by equities and risk appetite.
Australian dollar makes small gains
The Australian dollar made small gains against sterling yesterday, as a rally in stocks helped soothe investors’ nerves. The minutes from the RBA's last meeting, released yesterday, revealed that the decision to cut rates was a close one and that any further reductions are likely to be done in small increments. Meanwhile, UK inflation data gave sterling a small positive, as CPI data indicated the economy had not yet fallen into deflation. Investor focus today will be largely on a raft of UK data, including the BoE Minutes, culminating in the release of the government’s annual budget. The budget is likely to be the gloomiest in a generation, with analysts warning the government will likely forecast an economic contraction of around 3-3.5 percent for this year. The budget deficit is also likely to near 12 percent of GDP, its highest level since WW2. Investors will remain reluctant to take on large positions ahead of this news, with other key data, such as retail sales, released in the coming days. A series of poor results may put even more pressure on the pound.
Tuesday, 21 April 2009
Pound comes under selling pressure against the euro
The pound came under selling pressure yesterday as equity markets tumbled and investors began to brace themselves for the budget due in the UK on Wednesday. Despite the employers’ group, the CBI, coming out and forecasting that there will be economic growth in spring next year, markets were concerned about what may prove to be one of the grimmest budgets in decades. Sterling’s problems were also compounded by the announcement from Bank of America that it had seen a large increase in troubled loans, with the bank setting aside more funds for potential credit losses. Such news is negative for sterling due to the UK’s heavy dependence on the banking sector to drive the economy.
The Consumer and Retail Price indices are released in the UK this morning, giving an indication of inflation at present. Inflation has been cooling of late as commodity prices have fallen in the past year and the economy has been slowing. ZEW also release their economic sentiment survey within Germany this morning. Overnight we have seen Asian equities come under more selling pressure in a possible sign of things to come in Europe and North American trading. A slight boost to the FTSE today may come from Tesco, as they have reported pre-tax profits of £3.13bn, ahead of expectations, and an improvement of 10% on last year.
The Consumer and Retail Price indices are released in the UK this morning, giving an indication of inflation at present. Inflation has been cooling of late as commodity prices have fallen in the past year and the economy has been slowing. ZEW also release their economic sentiment survey within Germany this morning. Overnight we have seen Asian equities come under more selling pressure in a possible sign of things to come in Europe and North American trading. A slight boost to the FTSE today may come from Tesco, as they have reported pre-tax profits of £3.13bn, ahead of expectations, and an improvement of 10% on last year.
Pound weakens against the US dollar ahead of budget
The pound fell 2.45 cents against the US dollar in Monday’s trading to close at the 1.4537 level as investors remained cautious ahead of the UK’s budget tomorrow. Alistair Darling is expected to announce one of the poorest economic outlooks for decades when he outlines his budget for 2009-2010, and he is also expected to try and explain why the UK will need to increase borrowing to unprecedented levels. The Treasury looks set to reveal that it anticipates a 3.0-3.5% slowdown in the UK economy, a stark increase from November’s prediction of 0.75-1.25%, and that borrowing will hit around £180 billion, up from a projected £118 billion in November. The Confederation of British Industry (CBI) announced yesterday that it believes that the recession will ease off in the second quarter of this year and Rightmove reported that the rate at which UK house prices are falling had eased off. However, these announcements did little to pare sterling’s losses against a broadly stronger dollar.
In today’s trading the pound has managed to hold its ground somewhat against the US dollar, having come off an earlier low of 1.4471. Today sees the announcement of Consumer Price Index and Retail Price Index data in the UK and the ABC/Washington Post Consumer Confidence survey in the US.
In today’s trading the pound has managed to hold its ground somewhat against the US dollar, having come off an earlier low of 1.4471. Today sees the announcement of Consumer Price Index and Retail Price Index data in the UK and the ABC/Washington Post Consumer Confidence survey in the US.
Euro pressured by concerns about the banking sector
The euro rose by 0.1 percent overnight to $1.2932, a slight recovery after hitting a one-month low yesterday. Yesterday’s weakness came on the back of investors’ concerns over the global recession and renewed fears about the banking sector. Investors are also awaiting the ECB’s interest rate decision, where the central bank is expected to cut interest rates by 25 basis points and possibly announce non-conventional measures such as quantitative easing to tackle the recession, which other countries such as the UK and US have already undertaken. ECB President Jean-Claude Trichet indicated on Sunday during a trip to Tokyo that the bank's next move could likely be an interest rate cut of 25 basis points at its next meeting on May 7, but he failed to refer to any non-conventional measures, which resulted in increased investor concern about the euro.
US equities fell yesterday after Bank of America reported a jump in non-performing assets, underscoring the banking sector's troubles. The bank reported an increase in profit, but the fact that it reported a large increase in bad loans resulted in further concerns about the sector as a whole and prospects for an economic recovery. US data was also grim, with the Conference Board announcing that the recession is likely to continue throughout the summer.
In the UK, Alistair Darling will be announcing his budget report on Wednesday. This is likely to have an effect on most major currencies, because if the news is seen as bearish investors are likely to abandon riskier currencies and flock to the safe haven of the dollar, weakening the euro against the dollar.
In Germany, the ZEW Economic Sentiment Survey will be released at 10.00 BST this morning, whilst the ABC/Washington Post Consumer Confidence survey will be announced in the US at 22.00 BST.
US equities fell yesterday after Bank of America reported a jump in non-performing assets, underscoring the banking sector's troubles. The bank reported an increase in profit, but the fact that it reported a large increase in bad loans resulted in further concerns about the sector as a whole and prospects for an economic recovery. US data was also grim, with the Conference Board announcing that the recession is likely to continue throughout the summer.
In the UK, Alistair Darling will be announcing his budget report on Wednesday. This is likely to have an effect on most major currencies, because if the news is seen as bearish investors are likely to abandon riskier currencies and flock to the safe haven of the dollar, weakening the euro against the dollar.
In Germany, the ZEW Economic Sentiment Survey will be released at 10.00 BST this morning, whilst the ABC/Washington Post Consumer Confidence survey will be announced in the US at 22.00 BST.
New Zealand dollar hit by risk aversion
The New Zealand dollar was buffeted yesterday by falls in equity markets and decreased demand for riskier assets and high yielding currencies. Domestic data over the last week still paints a gloomy picture for the local economy, and investors are still pricing in a 50 basis point rate cut when the Reserve Bank of New Zealand meets next week. Local data remains sparse this week, so the kiwi will continue to be largely guided by broader market movements.
Australian dollar undermined by falling equities
The Australian dollar retraced recent gains against the pound yesterday, after falls in global equities dented investor risk appetite and demand for high yielding currencies. The share market falls were largely driven by the banking sector, with fears the situation may get worse before it gets better. This has effectively doused growing optimism that the global economy was bottoming out of its steep decline. Investors will focus on a raft of UK data in the next few days, starting with inflation figures today. But the central focus this week will be the UK government’s annual budget tomorrow. The government is already running a massive deficit so any plans to further loosen fiscal policy may be poorly received by markets.
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