MARKET REPORT FRIDAY 9TH MAY 2008
Good Morning,
The Pound has struggled against the majors this week as the focus switched to the Bank of England interest rate announcement yesterday and the
However, the Bank of England elected to keep the benchmark lending rate unchanged at 5.0% yesterday as record high oil prices threaten to fuel inflation. The extent of the division within the Bank of England will not be fully exposed until the minutes of the May meeting are released later this month and the Pound may come under further pressure over the coming weeks amid suggestions of a June rate cut.
In the aftermath of the BoE rate announcement, the European Central Bank also held rates unchanged in May and the Euro rebounded from a two month low against the Dollar after the tone of the Central Bank’s accompanying statement showed that inflation remains the top priority. The resilience of the Euro-zone economy combined with the ECB’s stance on inflation has seen the single currency appreciate to record highs against both the Pound and the Dollar this year and the report yesterday showed that policy makers are in no hurry to begin cutting interest rates.
The Chairman of the Central Bank, Jean-Claude Trichet, seemed to ignore the downside risks to economic growth and said that inflation will stay above 3.0% “for a rather protracted period”.
An EU report earlier this week showed that retail sales fell to the lowest level since the series began in 1995 and indicated that consumers are struggling with record high energy costs. However, the European Central Bank will probably hold rates steady at 4.0% over the coming months and retain a tightening bias until the fastest pace of inflation in 16 years shows some signs of slowing.
The Dollar rose to the highest level since February against the Pound reaching 1.9500 and 1.5300 against the Euro. The U.S Treasury Secretary, Hank Paulson, has recently said that the economy is through the worst of the credit crisis but the latest figures show that the gross domestic product grew at the slowest pace since the last recession in 2001. The Dollar has found some support this week amid speculation that the Federal Reserve will keep rates unchanged this month but a softening in the labour market, rising foreclosures and dwindling confidence may see the Dollar struggle to extend its rally beyond the current levels as the economy struggles to cope with the collapse of the U.S housing market.
Michael Ince
Archive News
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