The Pound declined against the Euro and the Dollar yesterday after Moody’s put the UK on watch for a credit rating downgrade. Reports this morning showed that British inflation slowed by more than expected and the housing market remained sluggish as a gauge of house prices remained at -16. This puts British officials in a difficult position as they must lower government spending or else suffer a credit ratings downgrade, but stagnant economic growth threatens to send the nation into recession. As Chancellor of the Exchequer George Osborne told reporters, “it [is] a reality check. It’s yet another reminder that Britain doesn’t have an easy way out of its economic problems.”
The Dollar made gains against the Euro and the Pound as investors grow wary of debt negotiations in the Eurozone. The strength has been further supported as a weak retail sales report weighs on stocks and commodities, prompting investors to seek the dollar’s relative safety.
Advanced retail sales registered +0.4%, up from last month’s flat reading, but short of the +0.8% forecast. The disappointing results were a product of an unexpected sharp drop in the purchase of automobiles despite deep discounts and incentives. With cars stripped out, retail sales advanced by 0.7% as chains like Target and Macy’s topped sales forecasts in January. However, while top-line revenues at the big box retailers may be improving, picky customers are squeezing already thin profit margins. The dollar is also getting a temporary boost this morning as Fed member Plosser told reporters that the central bank will probably raise interest rates before “late 2014”, the most recent date mentioned by Chairman Bernanke. Plosser went on to say that Fed policy hinges on the economy and not a set date.
The Euro made small gains against the Pound while declining against the Dollar yesterday. The common currency does however remain largely range-bound ahead of a much anticipated Ecofin meeting tomorrow at which the second Greek bailout is the main focus. Greece successfully passed stringent austerity measures necessary to secure the second round of funding, but European policymakers are now signaling that it may be too little too late. In rather foreboding fashion, German Finance Minister Schaueble told reporters that Europe was better prepared for a Greek default today than it was two years ago. Meanwhile, Moody’s downgraded Spain, Italy and Portugal’s credit ratings and changed the outlook for the UK and France to negative. However, on a positive note, the German ZEW survey jumped to a 10-month best showing that economic sentiment in the Eurozone’s largest economy is at least improving.
Data released 15.02.2012
UK 09.30 Claimant Count Unemployment (January)
ILO Unemployment (December)
UK 09.30 Average Earnings / Ex Bonuses (December)
EU 10.00 Flash GDP (Q4)
UK 10.30 BoE Quarterly Inflation Report
US 13.30 Empire State – NY Fed Mfg Index (February)
US 14.00 TICS Net Capital Inflows (December)
US 14.15 Industrial Production (January)
Capacity Utilisation
US 15.00 NAHB House Builders’ Sentiment (February)
US 19.00 FOMC Publishes Minutes of 25th January Meeting