The Pound recovered some ground from the levels of around a five week low against the Euro as sovereign debt issues in Europe have crept back into the mindsets of investors. European policy makers have shown increased signs of disagreement on measures to resolve the problems. The Bank of England begins its two day monetary policy and rate setting meeting today, coinciding with the release of UK shop price data. The data has also helped push the Pound higher reflecting the strong impact that the VAT rise and higher commodity prices have had on prices which is likely to fuel the already high inflation levels in the UK.
Pound Sterling – UK Markets
Despite rising from the lowest levels in five weeks against the Euro, the Pound has fallen against the US Dollar which strengthened even more than the Pound in response to European debt issues. UK shop prices released this morning showed a rise at the fastest pace in two years in February.
The shop prices report from the British Retail Consortium has revealed the pressure faced by retailers to raise prices in order to deal with the VAT rise and surging commodity prices. It is a reflection of what is likely to happen with inflation figures, which are also expected to grow and will continue to put pressure on the Bank of England to raise interest rates.
Tomorrow’s rate decision announcement is widely expected to reveal that rates have been held once more at 0.5 percent. Markets will be keen to discover more detail from the minutes in two weeks time about whether any more than the three members from the last meeting on the nine panel committee have voted to raise rates.
US Dollar – US Markets
The US Dollar has strengthened as investors have taken funds away from the Euro as sovereign debt in some Euro member nations moves back to the forefront. The Dollar has also been helped by slightly easing oil prices.
Tomorrow afternoon sees US jobless claims, alongside the trade balance and monthly budget statement.
Euro – European Markets
The Euro fell yesterday as issues over debt, following the downgrading of Greece’s credit rating by Moody’s investors, have somewhat dampened the optimistic outlook that the talk of an interest rate rise was creating.
Whilst Trichet’s words last week have been fuelling speculation that a rate hike could come very soon and strengthened the currency, the ongoing issues with Greece have come as a reminder about the problems still prevalent in many Euro nations and also raised the question of how well such nations could realistically withstand a Euro-wide rate hike.
This diluted the effect of positive data from Germany yesterday in the area of factory orders which rose by 2.9 percent in January which was much higher than market expectations.
Other Currencies – Highlights
Japan’s revised fourth quarter GDP figures released later today are expected to confirm that the economy contracted throughout the last three months of 2010 at a slightly faster pace than the original Government estimate. The estimate is that GDP will have shrunk by 0.3 percent from the previous quarter.
When a similar downwards revision took place with UK GDP recently, the impact on Sterling proved that the currency can become vulnerable to a downwards slide. If you have Yen to purchase or sell, it is therefore advisable to monitor the impact on the rates.
Sterling Rises on Hopes of EU Softening Tone on Backstop