Last week was volatile for the Pound following a set of Bank of England minutes which revealed growing support for an interest rate rise, only for revised GDP figures to come in even worse than initially expected. Set to bring more volatility this week is UK house prices figures as well as manufacturing data, both expected to have shown declines for February. The global situation, with tensions in the Middle East as well as surging oil prices, will also continue to cast influence over exchange rates, with the Euro and Swiss Franc gaining.
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Pound Sterling – UK Markets
The Pound is beginning the week slightly stronger, having taken a tumble against other major currencies last week as a result of poor UK GDP data. The Pound may be vulnerable again this week with several announcements on house prices which are expected to have slid for a second month.
The run of PMI data due this week also begins tomorrow with manufacturing. Forecasters are predicting a drop in this sector which could also be bad news for the Pound.
Last week’s GDP figures revealed that the economy contracted by 0.6 percent in the last quarter of 2010 – an even worse figure than the originally estimated 0.5 percent, dashing hopes that the figure would be revised upwards, and making an interest rate rise even more unlikely.
Also in the UK news today, is that Northern Rock are to begin to offer 90 percent mortgages – this signals a return to a form of pre-recession riskier lending and is the first signal that the economy and the bank, which received a bail out, has maintained a certain level of recovery to be able to offer mortgages of this kind.
US Dollar – US Markets
The Dollar index recovered throughout the second half of Friday with these stronger levels being maintained over the weekend, following falls earlier in the week as unrest in the Middle East pushed oil prices higher.
The Dollar may still be vulnerable to the effect of increasing oil prices this week. The currency could also come under pressure as it is expected that Federal Reserve Chairman Bernanke will signal that interest rates will stay near zero. The Federal Reserve will also be under scrutiny this week as Bernanke delivers the semi-annual report on monetary policy to the Senate Banking Committee tomorrow. Should the report confirm assumptions that the US is lagging behind other economies such as the UK and Europe in its likely timetable for any interest rate rises, this could result in some Dollar weakness.
Euro – European Markets
The Euro grew last week as strengthening oil prices took funds away from the Dollar and into the single currency. This week may see growing Euro strength as inflation has come in this morning at a slightly less than predicted level but still at around a two year high of 2.3 percent.
Following this confirmation of high inflation, the European Central Bank will be under scrutiny as GDP figures are announced on Thursday as well as the interest rate decision with several members speaking out to suggest that high inflation levels are causing interest rates to be more carefully considered.
Other Currencies – Highlights
The Canadian Dollar has climbed to its strongest level in almost three years against the US Dollar due to the surge in oil prices, as crude oil, Canada’s largest export had it biggest weekly gain since 2009. GDP figures are released later today.
The currency is also strengthening in reaction to other positive news such as the fact that Morgan Stanley has boosted its 2011 growth forecast for the Canadian economy to 20.9 percent from 20.6 percent due to higher exports. There are expectations also for the Bank of Canada to boost its benchmark interest rate in the second quarter of 2011.