It’s the latest report from the currency markets, provided by currency broker SGM-FX.
Prices of goods and services failed to match the declines from last year as the headline inflation rate rose to 3.5% for March from 3.4% previously.
This shouldn’t have an effect on BoE policy decisions, although this will cause unease and increase importance of future data releases as further negative news could have stronger implications on decisions made going forward. In theory, higher inflation should discourage further monetary easing, which had looked increasingly more possible over the last few weeks. Demand, though, would trump inflation fears, so further QE cannot be completely ruled out, especially if fears for the economy and the threat of recession both rise.
This possibility was confirmed yesterday when the world bank, the IMF, stated that there was scope for further monetary easing. Sterling has continued to hold strong as the UK currency continues to benefit from outflows from Europe, aided by better performing stocks and a strong risk appetite. However, this support failed to materialise into a rally and failed to challenge the 1.6 barrier against the USD and 1.2150 level is yet to be truly breached against the Euro.
The UK claimant count is expected to produce good results today, falling from 7,200 to 6,300, with the unemployment remaining at 8.4%. There is also expected to be a small drop in average earnings. These figures, along with the BoE minutes will be released at 9:30am.
There was a small decline in the annual housing starts in the US, a drop of 40k was announced. This fall was balanced by a rise in permits issued (permission to build) so influence on market conditions was minimal. There was no growth in industrial production for March, which was announced against a predicted growth figure of 0.4%.
No major US releases today, although energy stocks data will be released, we do have a busy day in the US tomorrow as a raft of important data, including jobless claims and existing home data is released.
The Euro made some gains against the USD yesterday, raising the level of support to 1.3100 against previous 7 day lows of 1.3000; this was helped by a gain in risk appetite. Germany’s ZEW index, which measures economic sentiment for the country, rose yesterday to 23.4 points in April from a previous reading of 22.3.
This comes despite an estimated reading of just 20.3, helping to fuel the rate rise against the USD. Looking closer at the figure, it also shows that sentiment for the Eurozone showed an unexpected increase to 13.1 points following a prediction of a fall from 11 to 10.7. These figures represent an unexpected positive outlook in the leading Eurozone economy. As with the UK a small increase in inflation from 2.7% to 2.6% was announced.
A sale of short term debt in Spain raised more than expected, taking in €3.2bn against a target of €3bn, helping 10-year yields fall the most in 4 months to 5.89%, below the psychologically important level of 6%. It is believed that drastic action is still required, though, as the economy in Spain continued to contract and disagreements between Germany and Spain over the EFSF (European Financial Stability Fund) became public, although the details of the disagreement are not known. There is also the Spanish bond auction on Thursday; this will be watched very closely this week.
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Morning Market Rates: (Please note: These are indication prices only, they are not offer rates)