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The foreign exchange market news is supplied by TorFX, a leading provider of foreign exchange services. |
08 July 2008
The Pound plunges to a two week low versus the Dollar as industrial production slumps by more than initial forecasts in May
The Pound continued to decline against the majors yesterday, dropping under 1.9700 versus the Dollar and falling to a low of 1.2555 versus the Euro as government bonds rallied following a report that UK manufacturing contracted by more than previous estimates in May.
A report released last week from the Chartered Institute of Purchasing and Supply showed that construction activity had dropped to the lowest level since Labour came to Power in 1997.
However, the Pound suffered a strong intraday slide after a broader measure of industrial production increased the probability that the UK economy will slip into recession while a downturn in output will exacerbate the well publicised dip in home values and household spending.
Factory production slipped 0.5% compared to the revised numbers in April as the index fell to a reading of 102.7 in May and to the lowest level since September. Manufacturing accounts for 15% of UK gross domestic product while a downturn in service sector growth clearly shows that the outlook for the economy is deteriorating.
The Bank of England will meet this week and have considered raising interest rates to curb inflation but at this stage a rebound in policy would cripple economic growth as the slowdown spreads to the manufacturing sector.
Despite rising to a high of $2.0003 versus the Dollar last week, the UK currency slid a further 0.9% yesterday and the bearish sentiment surrounding the Pound may continue this morning following the release of the DCLG housing market index.
The Euro made widespread gains against the majors yesterday, shrugging off reports in Germany that growth in manufacturing had slumped as commodity price gains and slowing growth weighs on confidence.
German production fell 2.4% from April to record the biggest monthly decline since February 1999 and the report is just the latest illustration that the global slowdown is slowly filtering through to Europe.
The European Central Bank has thus far focused on the upside risks to price stability as inflation accelerates to the highest level in 16-years following a record high surge in food and fuel prices.
Nevertheless, the Euro stood firm despite suggestions that a downturn in manufacturing will give the ECB limited scope to raise interest rates beyond 4.25% but the heightened concerns over a UK recession may continue to drive the Euro higher against the Pound.
Although the Dollar registered modest losses against the Euro yesterday, the U.S currency took advantage of broad Sterling weakness while also benefiting from a surprising drop in oil prices after Iran’s Foreign Minister, Manouchehr Mottaki, expressed confidence in talks with the West regarding the country’s nuclear program.
The escalating tensions between Iran and Israel has helped drive the price of oil above $145 a barrel but OPEC President, Chakib Khelil, said yesterday that the 48% increase in prices this year was more related to the Dollar exchange rate than issues over supply.
Subsequently crude oil for delivery in August fell 2.7% to $141.85 a barrel in New York but the Dollar failed to capitalise against the Euro, falling from a one week high, amid increased appetite for high-yielding assets, which suggests that credit market losses will help drive U.S stocks lower.
Data Released 8th July
U.K 00:01` NIESR GDP Estimate (3 Months to June)
U.K 09:30 DCLG House Prices (May)
U.S 15:00 Pending Home Sales (May)
U.S 15:00 Wholesale Inventories (May)
U.S 20:00 Consumer Credit (May)
written by Adam Solomon
| 07 July 2008
The Pound trades sharply lower against the Dollar as we build up to the Bank of England interest rate announcement on Thursday
Following on from last week, the Pound declined against the majority of the major currencies as the dwindling sentiment surrounding the outlook for growth led to speculation that rising prices will propel the economy to the brink of recession.
Oil prices have continued to hit record highs over the past week and have remained well above $140 a barrel as concerns over supply escalate amid mounting tensions between Israel and Iran.
The impact on consumer price inflation will probably see prices hit 4% later this year but the Bank of England can’t afford to raise interest rates in the medium term as growth in manufacturing and service industries slip into contraction.
The focus this week will inevitably fall on the Bank of England interest rate announcement on Thursday and given the current economic climate, the MPC will probably leaves rates on hold at 5.0%.
The minutes from the meeting will not be released until later this month so the Pound may fail to find any support amid a packed week of UK economic data.
The BCC Quarterly manufacturing survey along with the industrial production numbers are expected to point to further downside risks to the economy.
Elsewhere the DCLG and Halifax house price surveys will probably show that home values continued to fall in June after declining 6.3% this year.
Nevertheless, the Pound is still trading towards the high of the long established trading range against the Euro while Dollar buyers may wish to place a stop order in the market to protect against further Sterling losses.
The Euro posted a weekly decline against the Dollar and also suffered sharp losses against the Pound after the ECB President, Jean-Claude Trichet, failed to give any clear insight into a further increase in rates.
Despite the Central Bank’s decision to lift interest rates by a quarter of a percentage point on Thursday, the Euro declined on speculation that policy makers wouldn’t raise again after Trichet said that last week’s move would bring inflation back towards target.
The staunchly hawkish stance of the ECB’s governing council has been softening to a degree in recent weeks as policy makers recognise the increased risks to economic growth.
The tone of the accompanying statement disappointed many economists who were hoping for a series of rate increases this year as inflation threatens to the exceed 4.0% and climb to the highest level in nearly 20 years.
Nevertheless, just 24 hours after the statement two members of the ECB’s governing council said fighting inflation is still the top priority even as growth falters.
The speculation surrounding the outcome of the U.S nonfarm payrolls report last week saw the Dollar plunge to a low of 2.0003 versus the Pound while oil prices continued to hit record highs and weigh on sentiment.
Nevertheless, the report was almost completely in line with expectations and the Dollar subsequently benefited from news in Europe and reports in the UK that manufacturing and services PMI slipped into contraction.
Stock and bond markets were closed for Independence Day on Friday and the tentative price action surrounding the Dollar suggests that the U.S currency could be poised to make further gains against the Pound after closing under 1.9850 on Friday.
Like the Euro-zone the U.S economic calendar is light this week so the focus will switch to the G8 meeting in Japan and the Dollar could benefit if the members indicate that they are prepared to intervene in order to prevent currency fluctuation.
Data Released 7th July
U.K 07:00 Halifax House Prices (June)
U.K 09:30 BCC Quarterly Manufacturing Survey (Q2)
written by Adam Solomon
| 04 July 2008
The Euro declines against the majors after the ECB President, Trichet, fails to provide any indication of a further rate increase
The Pound took advantage of broad Euro weakness yesterday to stage a strong intraday rally by the close last night but the UK currency declined against the majority of the major currencies as speculation increased that the Bank of England will refrain from raising interest rates this year.
The dwindling sentiment surrounding the outlook for economic growth has led to speculation that rising prices will propel the economy to the brink of a recession while recent economic reports have indicated a greater slump manufacturing and services.
The Chartered Institute of Purchasing and Supply said in a statement earlier this week that construction activity had slumped to the lowest level since records began in 1997.
The Pound had declined back towards the support at 1.9850 as the report was accompanied by news that Britain’s biggest homebuilder, Taylor Whimpey Plc, had suffered a record drop in share prices after failing to raise extra capital from investors.
The UK currency extended those losses yesterday after a separate report showed that growth in service industries contracted in June by the most since October 2001.
An index of business sentiment fell to a reading of 47.1 last month while a statement from the Bank of England showed that UK Bank’s may impose even tighter lending conditions over the coming months.
The unrelenting increase in oil prices will continue weigh on consumer spending as fuel costs hit record highs and concerns over a recession has brought the FTSE 100 index close to its lowest level in three years.
The Euro plummeted against the Dollar yesterday, dropping by the most in more than two months while the single currency also recorded sharp losses versus the Pound after the European Central Bank President, Jean-Claude Trichet, failed to give any clear insight into the probability of a further increase.
The ECB’s governing council members elected to raise the benchmark lending rate by a quarter of a percentage point yesterday, bringing the yield differential between Europe and the U.S to 225 basis points.
However, the focus of attention was always going to be on the tone and language used in the accompanying statement where Trichet played down the prospects of any further interest rate increases this year.
The ECB Chairman disappointed most economists and even suggested that July’s move would help bring inflation back towards the 2.0% target.
In the build up to the announcement, the Euro rallied against both the Pound and the Dollar amid speculation that the Central Bank would indicate that further rate increases may be necessary in order to bring inflation down from the highest level in 16-years.
Despite oil prices rising above $144 a barrel, Trichet said that a July rate will help the ECB ‘achieve their objective’ while the Central Bank insisted that he has “no bias” to raise rates beyond the current 4.25%.
The Dollar benefited from widespread Euro and Sterling weakness yesterday while the uneventful U.S nonfarm payrolls report delivered pretty much what the market had anticipated.
Although companies slashed jobs for a six straight month in June, payrolls fell 62,000 from the previous month and the unemployment rate held steady at 5.5% after rising to the highest level in twenty years.
However, the weakening sentiment surrounding the U.S labour market combined with reports that service industries contracted in June and signalled that the economic slump may deepen and prevent the Fed from raising interest rates.
The report from the Labour market indicates that rising unemployment will fail to support the economy while higher fuel prices and falling home values will limit consumers ability to spend.
Nevertheless, the Dollar managed to close under the support at 1.9848 versus the Pound last night but further movement today may be limited considering the U.S stock market is closed for the 4th July Holiday.
Data Released 4th July
GER 11:00 Industrial Orders (May)
U.S Market Holiday – Independence Day
written by Adam Solomon
| 03 July 2008
The Pound declined against the majors yesterday amid reports that the biggest UK home builder, Taylor Whimpey Plc, failed to raise additional capital
The Pound slumped to the lowest level in three weeks against the Euro yesterday and also consolidated back towards the support at 1.9860 versus the Dollar after news broke that Britain’s biggest homebuilder, Taylor Wimpey Plc, suffered a record drop after failing to raise fresh capital from investors.
The Pound declined against all but one of the 16 most actively traded currencies yesterday while an industry survey showed that the UK’s construction industry contracted at the fastest pace since records began in 1997.
A spate of recent economic reports has indicated that the downturn in manufacturing combined with falling home values and slowing consumer spending could propel the economy towards a recession.
UK mortgage approvals slumped to the lowest level in at least nine years in May while home values have dropped by the most in June since 1992 while former MPC policy makers Stephen Nickell said that the Bank of England should avoid raising interest rates as the mortgage market edges towards “famine”.
The Pound fell 0.6% against the Euro by the close of trading last night but the UK currency bounced back above 1.9900 versus the Dollar as the focus switches to the ECB rate announcement and the U.S nonfarm payrolls report.
The Euro looks poised for a sharp upward move against the Dollar with a break above 1.6000 imminent depending on the tone of Jean-Claude Trichet’s comments in the aftermath of the ECB interest rate announcement this lunchtime.
The market has largely discounted a 25 basis point increase in borrowing costs but the focus will fall squarely on the tone and language in the accompany press conference where the ECB President, Jean-Claude Trichet, may reiterate the upside risks of inflation.
In an interview with a German newspaper yesterday, Trichet warned that there was an inherent risk of inflation “exploding” this year and urged other Central Banks to act quickly and decisively.
The Euro rallied higher against both the Pound and the Dollar yesterday while a separate report from the EU showed that producer prices jumped a record 7.1% in May.
The report increased speculation that the ECB will signal a further tightening of rates over the coming months but the Euro will come under significant pressure should Trichet adopt a more neutral stance in the accompany statement and acknowledge the threats to economic growth.
The Dollar plunged to the lowest level in two months against the Euro and still looks destined to revisit the $2.00 level versus the Pound amid speculation that the monthly U.S job report will confirm that payrolls dropped for a sixth consecutive month.
The ADP employment index, which provides an insight into the Nonfarm payrolls numbers, showed that U.S companies shed more jobs than initial forecasts in June while the unrelenting rise in oil prices continues to dominate and weigh on Dollar sentiment.
The widely anticipated report from the Labour Department will probably show that companies slashed 60,000 jobs last month but a number greater than this could rekindle concerns over a recession.
Data Released 3rd July
U.K 09:30 CIPS Services PMI (June)
EU 10:00 Retail Sales (May)
EU 12:45 ECB Rate Announcement
EU 13:30 ECB Press Conference
U.S 13:30 Initial Jobless Claims (w/e 28th June)
U.S 13:30 Non-Farm Payrolls (June)
- Unemployment
- Average Earnings
U.S 15:00 ISN Non-Manufacturing (June)
- Business Activity
written by Adam Solomon
| 02 July 2008
The Pound briefly revisited the $2.00 level against the Dollar yesterday as oil prices continue to climb
The Pound rallied higher against the Dollar yesterday and briefly revisited the $2.00 level for the first time in over two months while the UK currency also registered modest gains versus the Euro as the impact of weaker housing and manufacturing data was offset by the further increase in oil prices.
The price of crude oil has risen 48% this year alone amid concerns over supply while tensions in the middle east escalate following reports that Israel is increasingly likely to attack Iran this year as OPEC’s second largest oil producer acquires enough enriched uranium to build a bomb.
The U.S news channel ABC claimed that the statement came from an unidentified source at the Pentagon while the International Energy Agency said that supplies may not keep up with demand through 2013, which will keep prices elevated as oil settled just above $140 a barrel last night.
In terms of economic data, the Pound again shrugged off weaker economic data after a report from the Nationwide Building Society showed that UK house prices fell by the most since 1992.
The average cost of a home in Britain declined 6.3% from this stage in 2007 while a separate report from the Chartered Institute of Purchasing and Supply showed that growth in manufacturing unexpectedly contracted in June.
Tighter lending conditions and soaring commodity prices are bringing the economy closer towards a recession while the report indicates that policy makers can’t risk raising interest rates after the slowdown spreads to manufacturing.
As we build up to the ECB interest rate announcement on Thursday, the tentative price action surrounding the Euro is hardly surprising but the single currency took advantage of broad Dollar weakness yesterday while a report in Germany showed that unemployment dropped to the lowest level in nearly 16-years.
The number of people out work fell 38,000 from the official numbers in May to bring the jobless rate down to 7.8% and the lowest since August 1992, signalling that Europe’s largest economy remains resilient to a global slowdown.
The positive sentiment surrounding the Euro may continue this morning as the sole economic report released in the Euro-zone is expected to show that producer price inflation accelerated to an annual pace of 6.7%.
The correlation between rising oil prices and the decline in Dollar sentiment is becoming increasingly apparent while the U.S currency plunged to a near three week low against the Euro yesterday as rising energy prices are likely to weigh on spending and hurt the broader economy.
Although the economic calendar has been light this week, the focus of attention will again be fixed on the geo-political issues arising in the Middle East while the ADP employment index will provide an insight into Non Farm payrolls released on Thursday.
Data Released 2nd July
EU 10:00 Producer Price Index (May)
U.S 13:15 ADP Employment (June)
U.S 15:00 Factory Orders (May)
U.S 16:00 Treasury Secretary Paulson delivers keynote address
written by Adam Solomon
| 01 July 2008
The Pound remained largely unchanged despite a further drop in consumer credit and house prices
The Pound remained largely unchanged against the majors yesterday, consolidating above the major support at 1.9850, despite reports that UK consumer confidence dropped in June to the lowest level in 18-years and the period that preceded the end of Margaret Thatcher’s reign as Prime Minister.
The index of UK consumer sentiment fell to the lowest level since March 1990 while a separate report from Hometrack Ltd showed that house prices fell to the lowest level since the survey began in 1990.
Slowing consumer spending and falling home values will inevitably weigh on growth but the Bank of England Governor, Mervyn King, said last week that slowing economic growth would help contain inflation.
The BoE, like many Central Bank’s across the globe, face a difficult balancing act in measuring the slowing pace of the economy against record high commodity prices and must decide on whether to raise interest weeks next week.
The escalating threat of a recession still looms over the UK economy while Gordon Brown’s poll ratings just a year after taking office has seen Labour’s popularity plummet to the lowest since World War Two.
Elsewhere, the Pound also reversed earlier losses against the Euro after a report from the Confederation of British Industry showed that business confidence amongst UK banks and lenders recorded its steepest fall since 1990.
The Euro declined against the Dollar yesterday and also fell 0.1% versus the Pound as the tentative price action surrounding the single currency is in anticipation of the outcome from the ECB interest rate announcement this Thursday.
The flash estimate of the harmonised index of European consumer prices showed that inflation accelerated by more than initial forecasts as record high food and fuel costs increase the pressure on policy makers to raise interest rates and threaten the pace of economic growth.
The annual pace of inflation in the Euro-zone rose to 4.0% year-on-year in June and to the fastest pace in over 16-years and the report will shift the focus back on to the tone and language in the ECB press conference for any indication of a further increase over the coming months.
Nevertheless, there are some members within the governing council who believe that the mounting risks to growth warrant a more neutral stance on policy. However, a rare public division from Jean-Claude Trichet yesterday showed that the ECB Chairman is leaning towards a more aggressive stance on the current risks to price stability.
The Dollar ended a five-day losing streak against the Euro yesterday, paring its monthly decline against the single currency to just 1.3%, but the greenback may struggle to on hold to any gains as the ECB are expected to raise interest rates on the same day that U.S job growth contracted for a six consecutive month.
Data Released 1st June
U.K 00:01 Gfk Consumer Confidence Survey (June)
U.K 07:00 Nationwide House Price Survey (June)
U.K 09:30 CIPS Manufacturing PMI (June)
EU 10:00 Unemployment Rate (June)
U.S 15:00 Construction Spending (May)
U.S 15:00 ISM Manufacturing (June)
written by Adam Solomon
| 30 June 2008
The Pound rallied above 1.99 versus the Dollar as oil prices increase to the highest level on record
Following on from last week, the Pound took advantage of broad Dollar weakness to rise to the highest level in 2-months and perhaps more significantly the UK currency finally broke through the major resistance at 1.9850 to signal a further move to the upside.
The neutral tone of the FOMC rate announcement last week combined with the price oil rising to $142 a barrel for the first time ever has weighed on Dollar sentiment and the Pound looks set to test the $2.00 level this week as the focus switches to the U.S non-farm payrolls report.
The Pound also made gains against the majority of the 16 most actively traded currencies on Friday and the improvement was hardly surprising since the UK current account deficit narrowed for the first time in three months.
However, a separate report from the Office of National Statistics showed the final estimates for economic growth in the first quarter was revised down due to a drop in services output and slower consumer spending.
Nevertheless, the Pound stood firm in the aftermath of the report as the numbers were largely in line with the Bank of England’s initial forecasts for growth and are what policy makers are relying on to rein in inflation.
In terms of economic data, the Pound may struggle to find support as the sparse supply of economic indicators should indicate further weakness in the economy.
The Purchasing Managers’ index of UK manufacturing and service sector growth is expected to slip below a reading of 50.0 while a separate report on consumer confidence will probably show a further decline in spending.
The Euro has made gains against both the Pound and the Dollar in the past week and the focus this week will inevitably fall on the ECB interest rate announcement on Thursday as policy makers are expected to lift borrowing costs by 25 basis points to 4.25%.
A number of ECB officials have frequently expressed their concerns on rising inflation and the impact on the broader economy but the tone of last month’s statement led to speculation that the Central Bank will implement a series of rate increases despite the mounting downside risks to growth.
The ECB have been quick to stress that a July rate hike would be a one-off and the focus will therefore fall on the tone and language used in the accompanying statement as traders look for any further indication of the probability of a further increase over the coming months.
The Dollar fell to the lowest level in 2-weeks against the Euro on Friday and closed above 1.9900 versus the Pound after the Federal Reserve failed to provide any further indication of a reversal in monetary policy following the most aggressive period of easing in 20-years.
The decline in Dollar sentiment coincides with the price of oil reaching a new record high on Friday while the Dow Jones Industrial Average headed for the worst June performance since the 'Great Depression'.
The focus this week will surely fall on the U.S non farm payrolls report on Friday where employers probably cut jobs for the sixth straight month in June, emphasising the gradual softening in labour market conditions.
Data Released 30th June
U.K 09:30 Consumer Credit (May)
- Mortgage Application
- Mortgage Lending
EU 10:00 Harmonised Consumer Price Index (June)
U.S 14:45 Chicago PMI (June)
written by Adam Solomon
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