- Sterling sliding after weaker UK inflation data
- US Dollar gains on Japanese Yen moves
Clearly record profits aren’t
enough for HSBC who are planning to start charging for the use of First
Direct accounts and Ken Livingston, just back from his unexplained and
fishily spurious trip to South America, wants to charge anyone with a
larger car £25 just for visiting London. That’s great for the tourist
trade I’m sure. I guess politicians will be exempt from the charge on
their Jags as will anyone involved in the Olympics plans and we will
all blithely accept without question that this is an environmental
matter and not a revenue issue. It’s a good thing inflation slipped
last month because with higher interest rates and all these extra
costs, we need a bit of relief. At 2.4 percent, UK inflation remains
well above the Bank of England’s target but it fell below forecasts and
that eased the pressure on the Pound. Sterling slipped against all
comers after the news, as estimates for the next UK interest rate moves
were
altered. Most analysts are still expecting another UK interest rate
hike in February 2007 and today’s Bank of England inflation report will
provide more insight
into the thinking of the Monetary Policy Committee – the guys who
decide these things. We also get some unemployment numbers and wages
data from the UK and a bit of EU and US data, both covered below. Have
a great Wednesday, enjoy the Queen’s speech with all its promise of
further infringements of our civil liberties and don’t worry about the
Ashes. Trescothick is expendable as long as Strauss, Flintoff, Cook,
Panesar and Pietersen are on form and let’s just hope that Ed Joyce
doesn’t become the Theo Walcott of the Ashes tour.
The US trading session was
mixed with a sharp decline in producer prices, including a distortion
brought about through commercial vehicle sales, and a slide in retail
sales, themselves distorted by gasoline prices. The distortions in
these data releases meant that the USD declined at first but regained
its composure before the close of play. It will be equally mixed today
with most traders nervous ahead of the Empire State manufacturing
sentiment report and the release of the minutes from the last Federal
Reserve interest rate setting meeting. This news is published at 19:00
GMT which could make for an odd afternoon trading session in the UK. We
are watching the $1.8930 level on the GBPUSD exchange rate with
interest because, if the market can find a way below here, then a more
substantial fall is certain and $1.86 beckons. However, if the Bank of
England report is hawkish and the Federal Reserve minutes are less
so, we could see another rebound in the GBPUSD exchange rate.
Obviously, the opposite is true if the hawk/dove roles are reversed.
The scene is set for a very interesting day.
SSterling was hit by the UK
inflation data but the Euro was battered by a German ZEW index which
hit a 13 year low. The ZEW research institute publishes this index of
business expectations monthly and this reading of -28.5 was the worst
since March 1993. That doesn’t bode well for the European Central
Bank’s plans to raise the EU base interest rate by 0.25 percent in
December and that is why the Euro was weaker during the latter part of
Tuesday. However, this morning’s UK wage and employment data was pretty
dire and the Pound is under pressure again. I have bored you all to
tears with my concern that GBPEUR wouldn’t rise any higher and
forecasts of a decline for the last few weeks and finally my
soothsaying is bearing fruit. GBPEUR may well slide rather more
substantially in the coming days and I would urge anyone who needs to
buy Euros to do so in case the fall accelerates.
All reformers, however strict their social conscience, live in houses just as big as they can pay for.
Logan Pearsall Smith
FX Research and Analysis undertaken by:
David Johnson - Halo Financial
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