Currency Update
Today is Friday the 13th, and it’s effects are already being felt in here with a partial power outage for half the office; however we’ve moved desks and are soldiering on, much like the dollar which has continued to March upwards after Wednesday’s brief blip. The USD’s rise was boosted by much stronger than expected retail sales figures which rose by 1.1% in May, after a strong rise of 1.2% April. May’s rise was double what was expected, and shows that the US government’s cash handouts are being spent rather than saved; the UK government is going ahead with a similar scheme, (although of course in our case it is due political rather than economic expediency, as the Government attempt to pay off backbench rebels over the removal of the 10p tax band) and it will be interesting to see if UK consumer’s are as spendthrift. The rise in consumer spending has given extra weight to the series of hawkish noises coming from Fed members, a series that was continued yesterday as voting member Plosser, admittedly a noted hawk, stated that ‘it’s certainly clear that rates will have to rise.’.
The increase in expectations of rate rises in the US, the markets are now pricing in three complete rises by year end, has pushed the GBP/USD rate down to below 1.9450 as yesterday’s BoE Inflation attitude report, which unsuprisingly showed heightened expectations for inflation. The Pound also rose slightly against the Euro as again an ECB official came out to reassure the markets that any move in July would be a one off, and the Irish referendum on the recent European treaty caused a bit of uncertainty. Not even Wayne’s Wedding could help the single currency which weakened against the pound to around 1.2650, and dropped against the USD to around 1.54.
The G8 summit starts today, and the communique from the meeting is released on Sunday. The weak Dollar is bound to be a topic of conversation, but may not make the communique, however the high price of fuel may. Today also sees the start of a four day strike by some in the petrol delivery service. Of course the strikers paint their action as causing petrol shortages, while the government and the fuel industry say that they have enough petrol to last 4 days so long as no-one panic buys, so expect garages running dry by tomorrow.
The big release today is US CPI figure. As always this isn’t the Fed’s preferred measure of inflation, but it is still an indicator of prices in the economy. Oil price rises are expected to feed straight through to CPI, so a 0.5% increase up to 3.9% is possible. This coupled with the G8 meeting over the weekend is likely to help the dollar stay on it’s rising course.