The Euro is remaining robust as this week opens with the Pound dwindling around the lowest levels for over four months. The fact that European interest rates are set to rise earlier than in the UK is continuing to shape the sentiment of currency investors. There is a lot to play for in terms of UK data this week however with CPI inflation data tomorrow morning the first significant event with another high figure – this time of 4.2 percent – expected. The UK budget on Wednesday will also be scrutinised by markets who will interpret how well the Government is ensuring the continued economic recovery in the UK. In addition, the markets are closely watching events in Libya and Japan. This is a sensitive time with so much volatility in the Sterling Euro pairing so feel free to speak to your broker about how to protect yourself from movements on your transfers.
Pound Sterling – UK Markets
Sterling has dropped sharply over the weekend against the Euro but moved in the opposite direction on the US Dollar gaining in strength. This matches the weekly trend with the Pound now 0.99 percent lower on the Euro and 0.96 percent higher on the US Dollar than a week ago.
The economic impact of the Japanese earthquake and following intervention by the G7 to weaken the currency is being closely watched and there is continued uncertainty with regards to the UK recovery and when an interest rate will or will not occur. Markets have picked up on the comments in the foreword to the Bank of England’s quarterly bulletin released today from chief economist Spencer Dale. Dale wrote that the pace of policy tightening in the UK and abroad was expected by markets to be faster.
Tomorrow sees a wave of UK data in the morning with consumer price index, inflation, retail sales as well as public sector net borrowing having the potential to bring volatility. The inflation figure will be particularly scrutinised following its surge to 4 percent last month, twice the Bank of England’s target level.
US Dollar – US Markets
The Dollar has fallen over the weekend against both Sterling and the Euro, in total dropping to a fifteen month low against the basket of currencies in the Dollar Index early today. It is expected that a report later today will reveal that previously owned home sales in the US probably dropped in February to a three month low indicating a sustained housing market recovery has yet to develop.
There was little US data at the end of last week following Thursday’s jobless claims. This week, new home sales and mortgage figures are released on Wednesday, with more employment and goods orders data on Thursday. GDP figures end the week on Friday.
Euro – European Markets
The Euro has hit a four month high against the Dollar and continued to climb against Sterling as expectations rise for Europe to agree on details of increasing the bailout fund at the EU summit this Thursday.
The summit is aimed at soothing fears over European debt issues, so despite the perceived weakness in several Euro zone nations, the currency is continuing to strengthen as leaders are portraying a sense of unity in dealing with this. This is alongside the key issue of whether European interest rates will rise in the very near future which is also pushing the currency higher.
Other Currencies – Highlights
Japan is the third largest economy in the world and a key supplier of many goods including automotive and smart technology, this means that the natural disasters and ensuing nuclear threat are likely to affect the supply chain internationally. The G7 have joined forces to weaken the currency and the Bank of Japan pumped 15 trillion yen into the financial system to avoid a detrimental affected on the nations export but the effects of the disaster are likely to be felt globally.
The Yen initially fell the most against the Dollar in six months on Friday following the intervention. In reaction, the Australian and New Zealand Dollars re-strengthened following the knock on effect of a rise in Asian stocks.
BoE less likely to increase interest rates in May
UK’s CPI figure in spotlight, as the Pound value drops
Sterling slumps after lower than expected CPI results