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Thursday 15 th May 2008
Good Morning,
USD
The consumer price index was released yesterday and the April CPI figures were better than expected, with the headline readings lower at 0.2 percent versus 0.3 percent a month earlier and 3.9 percent down from 4.0 percent in the previous year. The dollar pushed to challenge levels just beyond 1.54 against the Euro in European trading on Wednesday, but was again unable to sustain the gains. It was up against the pound but has since lost a fraction of its gains. Overall inflation fears are liable to persist, especially with energy prices still at elevated levels and Fed officials are still concerned over the outlook. Markets are still expecting that interest rates will be left on hold at the June FOMC meeting and futures markets are also starting to price in a rate increase during the fourth quarter. The shift in expectations will continue to provide some degree of dollar support even though the futures markets may be over-optimistic over the economy and possibility of a rate increase. Traders will have a lot to digest from the US, with the economic data scheduled for Thursday consisting of weekly jobless claims, NY Fed manufacturing survey, March TICS, April capacity utilization, April industrial output, May Philadelphia Fed survey, and the May NAHB housing market index.
EUR
There was a small 0.2 percent decline in Euro-zone industrial production for a 2.0 percent annual increase which did not have a significant market impact. The Euro-zone growth and inflation data will be monitored closely on Thursday to assess the potential ECB policy trends and a weak set of releases would trigger renewed selling pressure on the Euro. The US currency drifted weaker towards 1.55 with some covering of short Euro positions and a strong German GDP report supported the Euro.
GBP
The pound fell to its lowest level since February against the greenback at 1.9366 on a combination of soft jobs data and a dreary outlook by the BoE. The UK claimant count increased by 7,200 in April after a revised 3,600 increase previously and three successive increases will increase expectations of a sharp economic slowdown. It was also the biggest unemployment increase for two years. Average earnings growth, however, rose to 4.0 percent from 3.7 percent which will maintain unease over inflation. In the latest quarterly report, the Bank of England increased its inflation forecasts compared with the February report. The bank warned that inflation was liable to remain above the 3.0 percent level for several months and could increase to 4.0 percent compared with the 2.0 percent target. There was also a downgrading of growth forecasts and Bank Governor King was notably pessimistic over the economic prospects. Although markets are now expecting the Bank of England to leave policy unchanged when it next meets to deliberate policy in June, the BoE issued a bleak outlook on both growth and inflation. Bank Governor King said "the MPC is facing its most difficult challenge yet". The bank will look to cut rates no more than once over the next six months owing to inflation which will reinforce Sterling’s yield support. Overall confidence in the economy will, however, tend to deteriorate which will certainly limit any currency support as recession fears intensify. Sterling was trapped in the 1.25 range against the Euro, but found some support below 1.94 against the dollar. The UK currency was subdued and little changed in early Europe on Thursday.
JPY
Risk appetite improved again following the benign US inflation reading and this allowed a renewed dollar challenge on resistance levels. The US currency peaked around JPY105.45, but again struggled to overcome selling above this level. The Japanese economic data remained weak with core machinery orders falling by a further 8.3 percent in March with orders at the lowest level for over three years. This data series is an important indicator of industrial strength and will undermine confidence with the government also downgrading its assessment of the economy which will tend to undermine the yen. There has been some underlying selling of Asian currencies which will offer some dollar support in the short term. The US currency was still struggling to overcome resistance and was holding just below 105 in early Europe on Thursday.
Morning Market Rates: (Please note: These are indication prices only, they are not offer rates)
GBP/USD: 1.9432
GBP/EUR: 1.2511
GBP/AUD: 2.0731
GBP/CHF: 2.0409
GBP/ZAR: 14.713
USD/JPY: 104.57
USD/ZAR: 7.5822
EUR/USD: 1.5432
EUR/ZAR: 11.7655
GBP/NZD: 2.5612
GBP/CAD: 1.9464
And finally
Have a god day
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