PhilBen
24th September 2010, 15:41
The pound struggled ahead of the publication of the Bank of England MPC minutes and the release of public sector net borrowing figures. Property company Rightmove released its house price index results early Monday that showed prices falling to 2.6% y/y in September, down from 4.3% the previous month. To compound the effects of the lower house price figures U.K. mortgage approvals data for August fell to 45,000 from 47,000 in July. The data continues to support a slowing in the U.K. housing market and raised concerns amongst investors over the stability of the economic recovery in Britain. The weaker housing data combined with pressure created by a report from the Bank of England, that showed lending to U.K. businesses fell for the 5th straight month, to set the pound of a downward trend.
The release of public sector net borrowing figures accelerated the pounds downward trend showing government borrowing in August increased to £15.3bln, well above the markets consensus forecasts of £12.51bln and the previous months £3.17bln requirement. Uncertainty remains over the impact that public spending cuts are likely to have on the U.K. economy and the increase in government spending left many investors averse to holding GBP-denominated assets.
The pound gained a short reprieve from the Federal Reserve Banks interest rate decision and an acceleration in Euro gains against the dollar, recovering earlier losses, just prior to the BoE minutes being published.
The Bank of England MPC minutes were far more dovish than had been anticipated by markets and drove the pound to its lowest level this week across most of the major currencies. Members voted 8-1 to keep interest rates and the £200bln asset purchase scheme unchanged with Andrew Sentance again voting for a 25 basis point rate hike, the decision was in line with economists’ expectations. The majority of the monetary policy committee saw the risks to the economy as remaining to the upside and stood ready to respond as these evolved, the members also felt that the probability that further action would become necessary to stimulate the economy and keep inflation on track to hit target in the medium term had increased.
The remainder of the week saw the pound trading according to wider market movements maintaining losses versus an appreciating euro and fully recovering against the dollar as the greenback came under pressure across most currencies.
The Euro posted a 5-month high against the dollar this week as a shift in sentiment amongst investors pushed the single currency higher. Economic data and concerns over the health and stability of some E.U. member countries continues to weigh on the euro. German and European PMI manufacturing data came out to the downside for September at 55.3 and 53.6 respectively while Ireland released its quarterly GDP figures that showed the Irish economy shrank 1.2% in Q2 and again highlighted the struggles the country faces as it tries to shore up its troubled financial sector. Ireland had issued a successful bond action earlier in the week although at higher prices to ensure a successful uptake by markets. These events pushed the euro lower across the board as they do still hint at an inherent instability within the euro-zone economy that introduces an element of uncertainty for the European Central Bank.
German PPI inflation data showed price pressures falling in August but from a fundamental data perspective German IFO sentiment data gave the single currency a solid boost as the week came to a close. IFO business climate and current conditions indices both came out higher than expected while the expectations index remained largely unchanged.
The dollar range traded in the early part of the week as the focus for markets was firmly on the Federal Reserve Bank’s interest rate decision released on Tuesday, markets have been speculating recently over the possibility of further quantitative easing being introduced which has resulted in investors shying away from the dollar. Lower energy prices gave the dollar support across the board as oil prices fell 2.5% after peaking just above $80 per barrel last week.
Economic data for the United States came out mostly to the upside but was overshadowed by wider market events and their positive impact on the dollar was short-lived. CPI data for the U.S. eased to 1.1% y/y in August, housing starts rose to 598K from 540K and existing home sales increased to 4.13mln from 3.84mln the previous month. Leading indicators were the last piece of supportive data showing economic activity expectations rising 0.3% above an expected 0.1% for August.
The dollar fell sharply across the majors after the Federal Reserve Bank announcement on interest rates. The central bank kept rates unchanged at 0.25% as expected. On the topic of the much speculated about liquidity boost the Fed opened the door wider still after initially opening the way for further cash injections after the Jackson Hole retreat a few weeks ago. The central bank expressed concerns over the low levels of inflation combined with a slowing economy and in its statement said the committee would continue to monitor the economic outlook and financial developments and was prepared to provide additional accommodation if needed to support the economic recovery. The dovish tones of the statement set a downward trend in place on the U.S. dollar, particularly against the euro but allowed the pound to make sizeable gains as well.
Next Week
Economic data will have a far greater influence on the pound this week with the main focus being the release of final Q2 GDP figures which are forecasted to remain unrevised. Housing numbers from the U.K. will certainly not be discounted, nor will the late week release of PMI manufacturing figures. Key for the pound will be data that supports the view of a stable British economy, markets are still quite uncertain about the impact of the government spending cuts to come and consistent, positive economic data in the next few months will be crucial in keep markets calm and level-headed on their sterling positions.
U.S. Q2 GDP figures will also be released this week and after the Federal Reserve Bank’s dovish statement last week is likely to have markets hoping for some positive news to ease the pressure on the greenback.
German data will be watched to see if there is any cause for more positive sentiment towards the single currency. Last week showed business confidence in Germany had improved and this week will see the release of consumer opinion on the economy.
Live IB rates at 4.40pm UK
GBP – EURO 1.174
GBP - USD 1.584
GBP- AUD 1.652
EURO - USD 1.348
The release of public sector net borrowing figures accelerated the pounds downward trend showing government borrowing in August increased to £15.3bln, well above the markets consensus forecasts of £12.51bln and the previous months £3.17bln requirement. Uncertainty remains over the impact that public spending cuts are likely to have on the U.K. economy and the increase in government spending left many investors averse to holding GBP-denominated assets.
The pound gained a short reprieve from the Federal Reserve Banks interest rate decision and an acceleration in Euro gains against the dollar, recovering earlier losses, just prior to the BoE minutes being published.
The Bank of England MPC minutes were far more dovish than had been anticipated by markets and drove the pound to its lowest level this week across most of the major currencies. Members voted 8-1 to keep interest rates and the £200bln asset purchase scheme unchanged with Andrew Sentance again voting for a 25 basis point rate hike, the decision was in line with economists’ expectations. The majority of the monetary policy committee saw the risks to the economy as remaining to the upside and stood ready to respond as these evolved, the members also felt that the probability that further action would become necessary to stimulate the economy and keep inflation on track to hit target in the medium term had increased.
The remainder of the week saw the pound trading according to wider market movements maintaining losses versus an appreciating euro and fully recovering against the dollar as the greenback came under pressure across most currencies.
The Euro posted a 5-month high against the dollar this week as a shift in sentiment amongst investors pushed the single currency higher. Economic data and concerns over the health and stability of some E.U. member countries continues to weigh on the euro. German and European PMI manufacturing data came out to the downside for September at 55.3 and 53.6 respectively while Ireland released its quarterly GDP figures that showed the Irish economy shrank 1.2% in Q2 and again highlighted the struggles the country faces as it tries to shore up its troubled financial sector. Ireland had issued a successful bond action earlier in the week although at higher prices to ensure a successful uptake by markets. These events pushed the euro lower across the board as they do still hint at an inherent instability within the euro-zone economy that introduces an element of uncertainty for the European Central Bank.
German PPI inflation data showed price pressures falling in August but from a fundamental data perspective German IFO sentiment data gave the single currency a solid boost as the week came to a close. IFO business climate and current conditions indices both came out higher than expected while the expectations index remained largely unchanged.
The dollar range traded in the early part of the week as the focus for markets was firmly on the Federal Reserve Bank’s interest rate decision released on Tuesday, markets have been speculating recently over the possibility of further quantitative easing being introduced which has resulted in investors shying away from the dollar. Lower energy prices gave the dollar support across the board as oil prices fell 2.5% after peaking just above $80 per barrel last week.
Economic data for the United States came out mostly to the upside but was overshadowed by wider market events and their positive impact on the dollar was short-lived. CPI data for the U.S. eased to 1.1% y/y in August, housing starts rose to 598K from 540K and existing home sales increased to 4.13mln from 3.84mln the previous month. Leading indicators were the last piece of supportive data showing economic activity expectations rising 0.3% above an expected 0.1% for August.
The dollar fell sharply across the majors after the Federal Reserve Bank announcement on interest rates. The central bank kept rates unchanged at 0.25% as expected. On the topic of the much speculated about liquidity boost the Fed opened the door wider still after initially opening the way for further cash injections after the Jackson Hole retreat a few weeks ago. The central bank expressed concerns over the low levels of inflation combined with a slowing economy and in its statement said the committee would continue to monitor the economic outlook and financial developments and was prepared to provide additional accommodation if needed to support the economic recovery. The dovish tones of the statement set a downward trend in place on the U.S. dollar, particularly against the euro but allowed the pound to make sizeable gains as well.
Next Week
Economic data will have a far greater influence on the pound this week with the main focus being the release of final Q2 GDP figures which are forecasted to remain unrevised. Housing numbers from the U.K. will certainly not be discounted, nor will the late week release of PMI manufacturing figures. Key for the pound will be data that supports the view of a stable British economy, markets are still quite uncertain about the impact of the government spending cuts to come and consistent, positive economic data in the next few months will be crucial in keep markets calm and level-headed on their sterling positions.
U.S. Q2 GDP figures will also be released this week and after the Federal Reserve Bank’s dovish statement last week is likely to have markets hoping for some positive news to ease the pressure on the greenback.
German data will be watched to see if there is any cause for more positive sentiment towards the single currency. Last week showed business confidence in Germany had improved and this week will see the release of consumer opinion on the economy.
Live IB rates at 4.40pm UK
GBP – EURO 1.174
GBP - USD 1.584
GBP- AUD 1.652
EURO - USD 1.348