The Pound made small gains against the Euro while declining against the Dollar yesterday on the dovish comments from Bank of England members. BOE members mentioned the benefits of maintaining a weak sterling in order to increase growth for the economy, indicating that the currency will stay weak for the near term. BOE’s decision last week, to leave their quantitative program unchanged, suggests that the UK is still under inflationary pressure and further stimulus may be needed.

The Dollar declined against the Pound while making small gains against the Euro despite disappointing consumer confidence data. US consumer confidence came out less than expected, at a mere 46.0 after a rise of 56.5 in the previous month and 55.0 forecasted. Still ahead, new home sales, durable goods, and jobless claims data are scheduled to be released later this week, with forecasts to be favourable. New homes sales is forecasted to increase from the previous 342k to 353k (-7.6 percent last month to 3.1% this month), while durable goods data is expected to increase1.5 percent compared to the 1 percent increase from the previous month. Despite yesterday’s setback on US consumer confidence, the greenback is holding up well due an unexpected decrease in Europe’s business confidence data. With mounting crises issue coming from the Eurozone, the US dollar will remain steady due to its safe-haven status.

The Euro declined against the Pound and the Dollar after a report showed an unexpected decline in German business confidence, the first decline in 11 months. IFO business climate index indicated a fall to 95.2 from 95.8, with a forecast of 96.1 in January. The index reached a 26 year low of 82.2 last March. With sustaining manufacturing activity in Germany, IFO report was forecasted to improve. The continue disappointing data from the Eurozone has lead market participants to be more risk cautious.

This morning’s rates

GBP/EUR 1.1402

GBP/USD 1.5432

EUR/USD 1.3530

Data released 24^th February 2010

UK:     09:30              BoE MPC board panel discussion

EU:     10.00              EU Ind. new orders

US:     15:00              New Home Sales

The Pound made small gains against the Euro and Dollar yesterday in the absence of any substantial economic data. The Pound remains under pressure on concerns that  the Central Bank will be forced to continue measures to revive Britain’s economy as the US leads other nations in withdrawing emergency monetary stimulus. This Thursday’s Q4’09 preliminary GDP release is expected to show a slight quarterly increase (0.2%); however, the y/y release is still expected to show a significant -3.1% reading which would hinder the Pound.

The Dollar declined against the Pound while remaining relatively unchanged against the Euro as a disappointing Dallas Fed Manufacturing  report (-0.1% in Feb. vs. 10.0% exp.), coupled with gains in US equities  and other global stock markets, have damped demand for lower-yielding assets such as the US Dollar. All eyes will be closely attuned to the two key Fed commentaries this week: The first will be SF Fed President Yellen’s perspective on the economy; the second will be Fed Chairman Bernanke’s testimony to Congress on 2/24 regarding the recent decision to increase their Discount Rate.

The Euro declined slightly against the Pound while remaining relatively unchanged against the Dollar following news that Germany is preparing plans for Eurozone nations to assist Greece. The single currency fell to 9-month low after the Fed’s surprise move raising its discount rate. Earlier in the week, the euro had managed to stabilize as market jitters over a potential Greece debt default were soothed as E-16 nations pledged support. News that the Region’s PMI was above forecast at 53.7 in February also provided some relief to the euro, but the currency remains overshadowed by signs that the US economy is on firmer footing.

Data released 23^rd February 2010

UK:     09:30 BBA Mortgage Approvals

UK:     11:00  CBI Distributive Trades

US:     14:00  S&P Case-Shiller Home Price

US:     15:00 Consumer confidence

The Pound made gains against the Dollar while declining against the Euro as weak Trade Balance data was released. Total Trade Balance widens to -7.3 billion verses -6.6 billion as forecasted. The RICS housing monitor saw a net 20% of real estate agents report a drop in the number of interested buyers, though a net 32% reported a rise in prices. The BRC retail sales monitor found same-store sales volumes down 0.7% on a year ago, and total sales up 1.2%, the slowest pace of increase in 15 years. Raising the VAT rate back to 17.5% may have also weighed on spending.

The Dollar declined against the Euro and the Pound as equities and commodities traded higher. With limited economic data out, the market is increasingly trading on the strength of equities. Also to note all eyes will be on Chairman Bernanke is scheduled to speak in front of the House of Senate today, which will provide further market guidance for the Dollar.

The Euro made gains against the Pound and the Dollar on speculation that Greece’s budget deficit will receive aid from European authorities. President, Jean Claude Trichet’s expected attendance of the European Union summit suggests that the meeting will further address Greece’s rising deficit issues. A concrete bailout solution along with firm policy actions will likely boost the euro further against the Pound and the Dollar.  However, if the EU summit fails to come up with a solid plan of action, continuing decline of the euro may be expected. Also to note better-than-expected German Trade Balance data further aided the Euro.

Data released 10^th February 2010

UK      09.30 Industrial Production (December)

Manufacturing Production

UK      10.30 BoE Quarterly Inflation Report

US      13.30 International Trade Balance (December)

UK      15.00 NIESR GDP Estimate (3 Mths to January)

US      19.00 Federal Budget (January)

The Bank of England has kept bank rates unchanged at 0.5% and has also maintained its bond buying programme at GBP200 billion. The Bank also affirmed its intention to make further bond purchases if needed.
It also confirmed that the UK economy was ‘picking up’ in the fourth quarter of 2009 after a decline in output on previous quarters. The world economy also continued to recover and this helped UK exports.

European stocks had a nightmare day yesterday amid concerns that Portugal, Spain and Greece will face great difficulty in lowering their budget deficits.

The ECB kept rates on hold at 1% and also said that he was confident that Greece can get its budget deficit under control.

“We expect and we are confident that the Greek government will take all the decisions that will permit them to reach that goal” of cutting the deficit below the European Union’s limit, Trichet said at a press conference in Frankfurt today. He said the ECB’s interest rate is “appropriate.”

His comments are slightly different from those he made on January 14^th when he stated that Greece couldn’t expect any special treatment from the EU.

Yesterday’s rates

GBP/EUR 1.1470 – 1.14201

GBP/USD 1.5916 – 1.5732

EUR/USD 1.3902 – 1.3728

Data released 5^th Feb

JPN: 05.00 Leading Indicators (December)

- Coincident Indicator (December)

ITL: 10.00 CPI (January)

GER: 11.00 Industrial Production (December)

US: 13.30 Non-Farm Payrolls (January) – Average Earnings – Unemployment Rate

US: 20.00 Consumer Credit (December)

In the UK, borrowing in the public sector was slightly less in December even though it hit a record high for the year to date.

The Office for National Statistics said yesterday that the public sector posted a net cash requirement of 23.60 billion pounds last month.

The rate of borrowing to businesses rose in November and this is the first increase since January 2009.Bank of England data also showed on Thursday, indicating credit conditions may be starting to stabilise.

Lending was down 7.6 percent on the year however, matching October’s reading which was the biggest annual fall since records began in 1999 and data from major UK lenders in the UK also showed that net lending actually weakened in December.

In the Eurozone, preliminary manufacturing PMI for January increased from 51.6 in December to 52.0. This is in line with market forecasts.

A result over 50 is considered positive for the sector while a result under 50 is considered negative.

In the US, new orders and business indexes have continued growing but at a slower pace at a slower pace than in December.

The World Bank said in its latest economic statement that the global economy would be likely to remain in recession throughout 2010 and predicted that global growth would be around 2.7%. According to the IMF , any global growth under 3% is equivalent to a recession.

The World Bank also stated that a 2.2% drop in global GDP, which is the rate of growth this year, would not be sufficient to cut the gap in output which has arisen because of the global recession.

Yesterdays exchange rates

GBP/EUR 1.1482 – 1.1551

GBP/USD 1.6127 – 1.6309

EUR/USD 1.4030 – 1.4135

This morning’s rates

GBP/EUR 1.1501

GBP/USD 1.6253

EUR/USD 1.4131

Economic releases

UK      : 09.30 Retail Sales (December)

EU-16 : 10.00 Industrial Orders (November)