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Pound Up Versus Dollar Before BoE's Interest Rate Announcement

The pound gained against the dollar during the overnight trade ahead of the Bank of England’s interest rate announcement scheduled for today at 12:00. The Monetary Policy Committee is expected to leave the benchmark interest rate at 0.5% and the quantitative easing program unchanged at 200 billion pounds. The main focus for the policymakers is to make sure that the economy can withstand the government’s fiscal austerity plans, and that the private sector activity can offset the contraction in public sector and increase in interest rates.  Minutes of the decision, which will show if any officials joined Andrew Sentence, Martin Weale and Spencer Dale in calling for the a rate increase, will be published on April 20. Expect for the pound to remain under pressure against the euro as the European Central Bank is expected to tighten its monetary policy at today’s meeting. 

The euro consolidated against the dollar during the overnight trade after Portugal’s government requested for the economic aid, highlighting the divergence in the region as the ECB prepares to raise interest rates. Portugal’s PM Jose Socrates said yesterday that his nation was seeking for financial assistance. Analysts expect that the rescue for Portugal may be worth as much as 75 billion euros. On the other hand, the European Central Bank is anticipated to increase its main rate by 25 basis points to 1.25% at today’s meeting. Many traders believe that the ECB will increase its base rate to 1.75% by year-end, boosting the single currency’s prospects.

Pound Drops After Weak Industrial Output Release

The pound declined against its major rivals this morning after a report showed that industrial production unexpectedly dropped in February. Industrial output dropped by -1.2% from January when the figure rose by 0.3%. In addition, weak manufacturing and house price outputs also erased most of sterling’s gains from past couple of days. Sterling was supported yesterday after UK services industries growth accelerated to the fastest level in more than a year in March. The Purchasing Managers Index gauge reported that services industry in UK grew by 57.1, beating the analyst expectations of 52.6 increase. Looking ahead for the reminder of the week, the Bank of England will meet on Thursday, and it is widely expected for the MPC (Monetary Policy Committee) to leave base interest rate and quantitative easing program unchanged. Expect for the pound to remain under pressure against the euro as it is widely expected for the European Central Bank to increase its interest rate for the first time since 2008.  

Pound Awaits PMI Services Release

The pound is higher against the euro this morning before the service industries report scheduled for 9:30 today. The PMI services figure for March is expected show expansion in the sector at 52.6, adding to optimism that the economy is recovering. However, we should be cautious in making any conclusion for the first quarter growth but to focus more on the degree at which the momentum in the services activity seems to be strengthening or vice versa. The British Chamber of Commerce (BCC) has warned that the UK economy risks falling into a “mediocre and disappointing” recovery. The BCC expect the growth in the first quarter and for 2011 as a whole to lag behind the OBR’s (Office for Budget Responsibility) forecasts. Expect for the pound to remain supported against the major rivals should we see encouraging PMI services release. 

Pound Up Before PMI Construction Release

The pound advanced slightly against most of its major rivals during the overnight trade before today’s construction purchasing managers index and Halifax house price release. Halifax house prices gauge is expected to have increased by 0.2% in March from February when they declined 0.9%. However, the construction PMI is expected to have consolidated slightly from its February reading. Looking ahead to this week, the main event is the MPC decision on Thursday. At the present there are three of nine monetary policy members calling for rate hike, and this is not expected to change at next meeting. The minutes from March meeting revealed that the other members needed to see better signs of improving growth and the latest batch of economic releases were quite the opposite. As this week’s economic calendar is filled with growth indicators expect for the pound to remain supported should we see some upside surprises on the data front. 

The euro consolidated against the dollar during the overnight trade on concerns that the probable interest rate hike by the European Central Bank will hurt the countries on the periphery of the region. The ECB announced last month that they have “strongly vigilant” stance against the inflation, indicating the willingness to be the first of three major banks to increase its base interest rates. Looking ahead to today, Eurozone producer price inflation is expected to have accelerated in February, rising by 6.7% on the yearly basis. Expect for the euro to remain supported against its major rivals ahead of the ECB monthly meeting scheduled for this Thursday. 

The dollar was mixed this morning, consolidating slightly against the pound but gaining versus the European single currency before the Federal Reserve publishes the minutes from its March policy meeting on Tuesday. Market participants are going to pay close attention to any comments from Fed’s President Ben Bernanke given some of the comments in recent days from several members of the FOMC (Federal Open Market Committee) about ending the quantitative easing (QE) program. Should we see any signs of possible reduction of the QE program expect for the dollar to outperform its rivals.

Pound Dropped Before PMI Manufacturing Release

The pound consolidated across the board this morning before the release of PMI manufacturing data today at 9:30. The gauge of factory output is expected to have fallen to 60.9 in March, from 61.5 a month earlier. Sterling came under pressure yesterday after Bank of England survey of credit conditions revealed that lenders expect the default rate to increase over the next three months on expectations the central bank is going to hike interest rates. In addition, the survey found that more small businesses are defaulting on loans. Expect for the pound to remain under pressure should the PMI manufacturing release surprise on the downside. 

The euro continued with its climb for a third week in a row on speculation the European Central Bank will raise interest rates on their April meeting. ECB President Jean Claude Trichet signaled on March 3 that he may raise base interest rates in order to contain the inflation. Looking ahead to today, PMI Manufacturing data within  the Eurozone headlines the economic calendar with the expectations for the figures to consolidate slightly in the region’s major economies. Also scheduled for today is the February Eurozone Unemployment release, and the number is projected to remain unchanged at 9.9%. Expect for the single currency to remain supported against the major’s as ECB will most probably increase interest rates at their next meeting.  

The dollar rebounded against most of its major rivals during the overnight trade before the release of March jobs data later on today. The payrolls most probably increased by 190,000 workers last month after a 192,000 advance in February, which was the biggest increase in nine months. Also scheduled for today is the ISM Manufacturing gauge for March, which is expected to consolidate slightly. Expect the dollar to remain supported against its major rivals before the non-farm payrolls release.