The Pound declined against the Euro and the Dollar after a report showed that British business confidence slipped to its weakest in two years. The pound fell to its lowest levels in nearly eight weeks against the dollar even before a report this morning that is expected to show that the British economy contracted 0.6% in Q4 ’10, further reducing investors’ expectations that the BoE will be able to hike rates any time in the near future. BoE policymaker Adam Posen warned over the weekend that UK inflation will drop from its current 4.2% to 1.5% in 2012 without any central bank policy action, and that higher borrowing costs would be prohibitive to economic growth.
The Dollar declined against the Euro while strengthening against the Pound as US consumer spending increased more than forecast in February, and after Fed Bullard said the central bank may consider scaling back its monetary stimulus. Consumer spending in the US increased in February as incomes climbed, helping to bolster the expansion in the world’s largest economy. Purchases increased 0.7%, the most since October after advancing 0.3% the prior month. Yesterday, the Fed’s preferred price measure (PCE), which excludes food and energy, rose 0.2% for a second month, and was up 0.9% from a year earlier, the biggest gain since October.
This week’s US calendar will be dominated by Friday’s two major data releases – ISM and non-farm payrolls.
The Euro made gains against the Dollar and the Pound as the Euro is supported by ECB President Trichet as he commented that inflation was beginning to show signs of being persistent.
Euro sentiment was dented after Portugal failed to pass its austerity package last week prompting a resignation by Prime Minister Jose Socrates.
Ratings agencies S&P and Fitch both downgraded the country last week causing its funding costs to soar, leading many to believe a bailout is all but inevitable. Meanwhile, economic conditions in the Eurozone core continue to improve with last week’s Industrial New Orders report rising 20.9% y/y in January.
Data released 29.03.2011
UK 09.30 Mortgage Approvals (February)
UK 09.30 Final GDP
UK 11.00 Land Registry House Prices (February)
US 14.00 Case Shiller House Prices (January)
US 15.00 Consumer Confidence (March)