Sterling looses ground ahead of BOE report as US economy shines bright
15/May/2013 • Currency Updates•
The pound weakened for a fourth consecutive day against the greenback on speculation investors cut their holdings of sterling before the BoE report today. Sterling also dropped to a two-week low against the euro despite a positive report on rising house prices in the UK.
We expect volatility throughout today’s session as there is an abundance of data releases from the UK. Kicking things off; The Claimant Change, which presents the number of unemployed, is expected to move from -7k to -3k, The Average Earnings including bonus is expected to drop to .7% down from .8% MoM and the ILO Unemployment Rate for March is expected to remain at 7.9%.
Today marks the 82nd press conference for the BoE Chairman Mervyn King which will be his final Inflation Report before Mark Carney takes over in July. The pound dropped .8% against the euro and dollar the last time the BoE published its previous report as it is vulnerable to a dovish inflation report. The inflation target and the Inflation Report are now under review as the Chancellor asked the Bank’s policy makers to consider whether and how the system could work better.
Despite a quiet day in terms of economic news out of the US yesterday, the dollar traded up towards the strongest levels in five weeks against the euro. Growing positive sentiment surrounding the US economy has gone further to suggest that the Fed will look to curtail stimulus moving forward, and growth forecasts suggest that the US will outpace a 0.5% contraction in the eurozone with growth figures of approximately 2%.
Today we see the PPI figures released from the US – figures which are a leading indicator of producer inflation. News released yesterday concerning the rapid rise in US shale oil reserves has had set off a ‘supply shock’ in the global energy markets and has been hailed as the saviour of the US energy industry.
The euro lost ground against the dollar and pound yesterday as a more upbeat outlook on the US economy, coupled with the Fed’s Plosser suggesting QE should end sooner rather than later in the US, caused investors to sell euros and buy dollars. The euro was also hit by negative news out of Germany as figures released showed that the behemoth economy expanded less than forecast in the first quarter of the year, only narrowly avoiding a recession. Business confidence in Germany also fell for a second month in April with the German ZEW survey printing below expectations.
Preliminary figures from the statistics office also showed that the French economy has fallen into recession after shrinking by 0.2% in the first quarter of the year.