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14/5/2008 − the current market sentiment

Wed, May 14 2008, 14:48 GMT
by Walid Salah El Din

FX Recommends

The British pound was under accumulated pressure from a weak jobs data as the UK jobless claimant has increased this month too by 7.2k and the dovish BOE quarterly inflation report which indicated that the Bank is capped from further cutting in June as the current high inflation rates. The UK April PPI output was 7.5% and also the core UK PPI figure increased by 4.5% y/y and 1% m/m above the market expectations of 3.2% y/y/ and .3% m/m and yesterday release of April UK RPI has shown a rise by 4.2% y/y and also CPI which crept to 3.0% which ensure the inflation pressure at the consuming level too putting pressure on the BOE to stand holding the interest rate unchanged further or at least ease by a gradual careful way which can cause a stagflation case amid the current weak growth rate which is expected to persist with no space to the bank of England to ease to stimulate it and as long as we have these high inflation rates, the UK economy can struggle further with no considerable help from the BOE which is trying to hold this inflation keeping prices stable.

if the CPI gone above 3.0% again the Governor of the BOE should send a letter to the Chancellor of the Exchequer explaining why such an overshooting has happened and what is the cause of it and what should be implemented to restore the inflation rate between 1% to 3% again.  The BOE position is really critical which effect negatively on the British pound.

The cable could not hold its gains above 1.545 getting use of the weaker than expected US CPI rate which came broadly at 3.9 % yearly and the core came at 2.3% also the monthly figure came at a slower pace than the market expectations of .3% monthly for the broad figure and .2% for the core figure to be just .2% for the first and .1% for the second. The data show lower the inflation risks but it can not say that it is to be moderated soon but it is just lightening the fed's inflation upside risks fear which can erode the Fed's easing impact.

The greenback is still supported versus the Japanese yen since yesterday US core retail sales release which increased by .5% m/m. the broad figure which include the auto sales has declined by .2% and the market was forecasting a drop by just .1% but the market has paid much attention to the core figure as usual supporting the greenback this time. The pair is trading now above 105 psychological level as the Japanese yen which suffers in the times of equity trading cheeriness as it triggers carry trades transaction as the low yield of the Japanese yen which makes it attractive to the investors to sell to take risk in the equity market.

Best wishes

FX Consultant

Walid Salah El Din

E-Mail: mail@fx-recommends.com

http://www.fx-recommends.com

Published on  Wed, May 14 2008, 14:50 GMT