Will markets fall back in love with the Pound this week? It may not be the most romantic subject to talk about on St. Valentine’s Day but what the currency markets will be most infatuated with this week is inflation. Markets will be keen to decipher how much love has been lost or gained between the monetary policy committee members. They will use the UK quarterly inflation report on Wednesday and Governor Mervyn King’s subsequent comments as a barometer for the next steps. The full truth about members’ appetite for a rate hike will emerge next week when the monthly minutes reveal if any more than the previous two members have voted in favour of a rise. The actual CPI inflation figures for January are released tomorrow – if this comes in above forecasts again we could potentially see some upwards Sterling movement against certain currencies so get in touch in advance today to discuss any Sterling transfers.
Pound Sterling – UK Markets
The Pound has moved up against the Euro and experienced some volatile movement against the US Dollar at the start of this week. With crucial data releases expected this week including CPI inflation figures on Tuesday and the inflation report on Wednesday we could be in for a volatile few days.
The focus on inflation will keep interest rates firmly in the spotlight following the Bank of England’s decision to keep rates at 0.5 percent last week. Both this week’s inflation report and next week’s minutes will be scrutinised by markets for signs of when an interest rate rise might come and potentially move Sterling depending on the contents. Vince Cable, the business secretary, has added his comments to the debate on whether rising inflationary pressure justifies an interest rate rise by saying that a rate rise is ‘potentially very difficult’ and that he sits on the side of the ‘doves’ – those who are against a rate rise.
Tomorrow also sees the retail and house price index alongside the CPI inflation figures so it could be a volatile morning.
US Dollar – US Markets
The US Dollar has maintained Friday’s gains against the Euro with further uncertainty in Egypt fuelling safe haven flows of currency.
Later this afternoon sees the NAHB Housing Price Index in the US but tomorrow sees the first big wave of US data with the export and import price index, retail sales and the NY empire state manufacturing index. Wednesday and Thursday are also dense with US data so it could be a volatile week.
Euro – European Markets
The Euro has fallen against the Dollar in the aftermath of last week’s disastrous Portuguese bond auctions which resulted in the European Central Bank having to intervene and buy up bonds to push down yields.
There European Finance ministers are also meeting this week to discuss debt reduction targets for various Euro zone nations with some predicting that there will be little consensus on how this should be handled or what the targets should be.
Other Currencies – Highlights
The Chinese trade surplus has fallen to a nine month low due to a larger amount of imports. The surplus was at the value of 6.5 billion Dollars in January compared to 13.1 billion in December.
Although most analysts are suggesting it is too soon to tell whether this is an ongoing downwards trend it may help appease some of China’s critics who suggest that that the nation deliberately intervene to maintain a weak currency to maintain the competitiveness of their exports.
The Chinese manufacturing boom has been closely compared to dropping exports in Japan in the press with official figures confirming that China has now overtaken Japan as the world’s second largest economy. Some are predicting that China will overtake the US as the largest economy within ten years.
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