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20/6/2008 − The Current Market Sentient

Fri, Jun 20 2008, 14:44 GMT
by Walid Salah El Din

FX Recommends

There was only today the germane PPI release which came higher than the market expectation of .9% at 1% m/m and yearly at 6% and the market was waiting for 5.8%. Next week flash releases of the June EU PMI services and manufacturing data and the germane IFO which is expected to be 102.3 and good news can reinforce the market expectation of a coming ECB interest rate hike. The PPI data have shown that the inflation is still building up at the producing level specially at the current high energy and commodities prices which is still forming a threat of the price stability over the medium term earlier this week we have had the release of May which was the highest among them all at 3.7% which is the highest rate ever and well above the ECB target which is 2% which should underpin the ECB expectation of tightening which can support the single currency which is trading well above 1.65 again right now.

The British pound is still underpinned by UK retail sales which surged in May by 3.5% m/m and 8.1% y/y. The surprising consuming data could contain the market sentiment after lightening the pressure on the BOE to cut. The recent BOE minutes have shown that the members have discussed all options but they have ended to keeping interest rate unchanged by a split voting as there was only one member voted for a cut.

Mervyn King's letter to Chancellor of the Exchequer Alistair Darling which indicated that the current high inflation rate above 3% is temporary and it is to go lower but it can rise above 4$ in the next half of this year. The inflation rate has reached 3.3% y/y in May and the market was expecting 3.2% and .6% m/m from .8% m/m in April. The pound declined after the data not as the rising inflation currently does not smooth the way for a rate hike but it tells that the buying power of the British pound is going lower and the BOE is hold back from tightening as the weak growth. The high prices can tackle the growth further as it tackles the demand. The continued high prices of energy and commodities are going against the demand from another side which make the British economy outlook is threat by the recession forces which surely can dampen the demand for the cable which was almost rises recently in the times of the greenback weakness not on an optimistic change in UK as what have come from yesterday May UK retail sales figures.

Best wishes

FX Consultant

Walid Salah El Din

E-Mail: mail@fx-recommends.com

http://www.fx-recommends.com

Published on  Fri, Jun 20 2008, 14:45 GMT