Weekly Market Update 23-03-2011
 

UK
Yesterday, UK inflation data for February showed the annual rate increased to 4.4%, up from 4% in January. Whilst economists had been forecasting an increase from January’s figure, this was higher than forecast and adds to pressure on the Bank of England to raise interest rates sooner rather than later. This helped Sterling regain some ground against the Euro and reach a 14-month high against the US Dollar, close to 1.64. Today we have just had the Bank of England’s minutes released. In February, six members voted to keep interest rates unchanged, while three members wanted an immediate rate hike, this month’s BoE minutes showed exactly the same result, a 5-4 split would have indicated an interest rate rise sooner rather than later, however the 6-3 result confirmed the current market thinking that a rate rise before Q4 is looking increasing unlikely. This is being followed later by the Chancellor’s budget at midday – both of these releases are likely to have an impact on the Pound. Tomorrow we have retail sales for February. Were January’s strong sales maintained or were they just a pre-VAT hike spike?

The budget (12.30pm):

Eyes will be directed towards the budget report which is expected to show a rise in taxes that would generate £1 billion to the government budget. Some of the measures announced today may include rise in taxes on some goods such as cigarettes and alcohols while fuel items will probably be postponed.

Eurozone
From Europe we have industrial orders (a recent strong point for EZ countries, particularly in Germany) and consumer confidence today followed by service sector & factory activity on tomorrow. Wrapping up the week will be a business climate index out of Germany.


GBPEUR 1.1510
Range for the week 1.1440 – 1.1555
Variance on £10k €115

US
U.S. stocks traded sharply higher this week while safe haven flows continued to see a sell-off of the US dollar as well as the Japanese Yen and Swiss Franc. Demand for risk has help to lift the euro, British pound, and commodity currencies while keeping the yen and the Swiss franc weak, helping to justify recent moves up to the recent 14 month highs of 1.64, in addition to the latest U.S. economic report, which showed more pockets of weakness in the U.S. economy. The U.S. housing market continues to underperform with existing home sales falling 9.6 percent in the month of February. Homes are staying on the market for a longer period of time and unfortunately inventory has risen by 3.5 percent, making the market for sellers even more difficult.

From the States tomorrow we have durable goods orders and on Friday we have the final GDP growth figures which are expected to be revised us to 3%, along with consumer sentiment for March.


GBPUSD 1.6322
Range for the week 1.6060 – 1.6400
Variance on £10k $340

Australia
Rising commodity prices on Monday seem to have petered away in later European trading but the risk-loving mentality continues to help recovery in the Australian dollar. However, the recent devastation by flooding followed by a cyclone still weighs on the Australian dollar, resulting in recent 4 month highs close to 1.65. The impact on trade is still uncertain and in coming months and it was hardly unreasonable to argue that the RBA might be forced into a policy response in the face of crisis.

GBPAUD 1.6160
Range for the week 1.6140 - 1.6290
Variance on £10k $150


Canada
For a second month in a row, yesterday figures show Canadian consumers cut back on spending as headline retail sales for January slid 0.3% to a seasonally adjusted C$37.1 billion. That follows a decline of 0.2% in December. Both figures undershot expectations, and January’s data surprisingly so. The consensus forecast had been for a 1.1% increase in retail sales. The Canadian Dollar weakened in the aftermath of the data.

GBPCAD 1.6015
Range for the week 1.5850 - 1.6080
Variance on £10k $230


New Zealand
Topping 2.25 last week following the devastation in Christchurch, weakness in the New Zealand dollar still appears to be keeping rates just above the psychological 2.20 mark. Remember we started the year at 1.98, so rates - now some 10% better than 3 months ago offer some attractive buying opportunities for our emigration clients.

GBPNZD 2.2055
Range for the week 2.1975 – 2.2240
Variance on £10k $265


GBPZAR 11.2850
Range for the week 11.2550 – 11.3640
Variance on £10k zar1,090