Sterling Stagnant in 2011

Following an interesting day in the markets yesterday, Sterling clawed back some of the recent losses against the euro after European Central Bank President Jean-Claude Trichet expressed concerns over the involvement of the ECB in the Greek bailout package. Furthermore, the Bank of England remained very quiet leaving the spotlight firmly on the Eurozone. It appears the only way for sterling to gain at the moment is to release little to no data. Pound Sterling UK house prices remained unchanged in May which may actually reflect well on the economic recovery. There were initially concerns that buyer confidence would dampen on the back of a faltering market. In fact, house prices were up 1.1 percent from a year earlier. Don’t however be fooled. The UK recovery is moving at a snails pace and with manufacturing output falling more than forecast in April this only reconfirms our overall thoughts. Furthermore, factory output also fell by 1.5 percent. Dollar Following a dismal couple of weeks for the dollar a ray of sunshine has finally burst through the storm clouds. It has been suggested that slowing consumer spending and employment levels will be temporary, giving way to a growth rebound in the second half of the year. Growth predictions have been set at 3.2 percent for the second half of 2011 on the back of rising exports, stable fuel prices and easier lending policies. On the topic of interest rates, recent performances in the economy mean that the Federal Reserve is unlikely to raise interest rates until next year. Current rates are at an all time low of close to 0 percent and with low growth it is no surprise that change is not imminent. Euro Following the interest rate announcement yesterday ECB President Jean-Claude Trichet refused to have any direct participation in a second bailout for Greece. Furthermore, he also reduced the likelihood that interest rate increases will be accelerated throughout the year. However, although the euro declined versus both the US Dollar and sterling following this announcement the single currency managed to cling on in there. An interest rate rise is a possibility in July and the overall inflation forecast for the next year remains unchanged at 1.7 percent. Other Currencies – Highlights The Australian Dollar declined further after Asian stocks erased earlier gains. This consequently dampened demand for higher yielding assets. On the flip side of this however, Australia’s pacific partner, the New Zealand Dollar traded near record highs. This came after reports showed China’s imports gained more than expected boosting prospects for commodity based traders in New Zealand.