Worries over Chinese growth as markets look towards UK budget

Tom Tong21/Mar/2012Currency Updates

China has raised the price of petrol by about 6% and diesel about 7% for the second time in 2012, as it struggles with the rising cost of crude oil.

Global oil prices have been high because of tensions with key supplier Iran.

GBP

Sterling cuts earlier losses of 0.2% against Euro before Osborne is due to present the budget today. The CPI edged lower to 3.4% from 3.6% in February and it has now reached its lowest rate since November 2010. These figures were also combined with a fall in RPI figures reaching 3.7% from 3.9%.

This data was counteracted with figures showing that the average earnings growth had slowed to just 1.4% annually, down from 1.9%. This means that despite a fall in inflation, households would not have found a significant change in their disposable income.

The contribution of lower heating and electricity bills to falling inflation looks to be undone with the threat of higher oil and petrol prices which hang over the economy. Include the CBI trends survey showing 39% of manufacturers are also set to raise prices “significantly” due to soaring oil prices, the plans of further rapid falls in inflation later this year are potentially derailed.

Also low-paid and middle-paid workers will be handed a tax break in today’s budget when personal allowance tax is expected to rise by £1000 for next year.

EUR

The Euro edged higher against the Dollar by 0.4%, while the yen weakened.

The Euro strengthened as risk appetite sharpened and Greece’s credit default swap auction passed successfully.

German investors are said to be keeping their money within the largest European economy as oppose to risking it elsewhere within the Eurozone.

USD

The Dollar gained across the board on Tuesday, lifted by safe-haven demand that was driven by worries about a potential slowdown in Chinas growth.

The US new home building figure dropped by 1.1% between January and February according to US government data. The unemployment figure remains at an 8.3% high indicating that the US economy is showing signs of weak economic growth, although the jobs market seems to be improving.

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Written by Tom Tong

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