It’s a quiet start to the week with a near-empty economic calendar for Monday although this will all change tomorrow morning when UK inflation figures are released. An even higher figure this time round could add pressure for an interest rate rise in the UK. Last week’s big events with the UK and European interest rate decisions are still shaping the markets with the Euro happily sitting in a strong position following more gains over the weekend. Register an enquiry with us or call your broker to get a live quote on any foreign exchange requirements that you might have.
Pound Sterling – UK Markets
Sterling has fallen against the Dollar and the Euro since Friday as monetary policy tightens up faster in Europe than the UK following the hold on interest rates in the UK last week whilst European rates were raised.
Sterling did reach a fifteen month high against the Dollar on Friday however as producer price data in March rose faster than expected. Today may be the calm before the storm with no data from the UK - tomorrow however sees the trade balance as well as retail, house price and inflation figures being released at 9.30am.
If there is yet another surge on the most recent 4.4 percent inflation figure, we could see some Sterling upwards movement as this will add more pressure to the Bank of England to raise rates. The other data in the mix such as retail sales however (which was disappointing last time round) could act against the potential momentum of a high inflation figure if the retail figures are again low.
US Dollar – US Markets
The Dollar has climbed back against Sterling over the weekend, with some of the uncertainty surrounding agreements on spending cuts now being cleared up. There had been some concerns that the Government would reach stalemate as officials struggled to decide on the 38 billion Dollar figure that is to be cut from spending.
Once the decision had been reached, the Dollar began to pick back up against Sterling. The currency is still struggling against the Euro however with an interest rate rise from the US seeming far off. Surging oil prices which have now reached a two and a half year high are also having their impact on the Dollar, instead benefiting the Euro.
The US trade balance will be the key piece of data tomorrow afternoon for the US economy.
Euro – European Markets
The Euro has grown again over the weekend, sitting at the high levels it has become accustomed to over the past month. Following the interest rate rise to 1.25 percent in Europe last week, reports are already starting to circulate about whether a second interest rate rise could come soon.
The currency therefore is managing to remain largely unscathed by the problems of individual nations with European ministers meeting to discuss the Portuguese bail-out. Other issues are still circulating – whether such nations will cope with the rate hike and also how struggling nations will fare with the Euro’s recent strength on the Dollar and the Pound which is potentially damaging to their export markets. It is still uncertain therefore whether the Euro’s strength will last or if eventually these underlying problems will result in poorer economic data and lost confidence that will bring the currency back down.
Other Currencies – Highlights
The South African Rand which has been notoriously growing over the past three months as commodity prices have soared, has taken a slight dip after an intense fourteen day rally on the Dollar.
There have been some suggestions that currency investors have ‘over-bought’ the Rand meaning that the currency is now over-priced. This means that there could be some losses against other major currencies if it should now begin to retreat and currency investors turn to other currencies.
US Dollar Continues to Outperform European Rivals
Pound falls further
British Pound Suffers Losses Ahead of Tuesday's Critical Vote