The pound is mixed this morning, consolidating against the broadly stronger dollar, but gaining against the euro as European debt crisis intensifies. Sterling also found some support during the weekend after Bank of England chief Economist Spencer Dale said that monetary policy makers should boost interest rates to control the inflation. Inflation accelerated by 4.5% in April, the fastest since financial crisis started, confirming the case for more hawkish interest rate outlook. Looking ahead to this week, the second estimate of first quarter GDP is released on Wednesday, with the expectations for the figure to remain unchanged at 0.5% growth. Also scheduled for this week are the Public Finances figures, CBI distributive trades numbers and Gfk consumer confidence release. The only notable event in UK today is public speech by BoE Deputy Governor Paul Tucker in London at 1:30. Expect for the pound to experience excessive volatility in coming days with a lot of upward potential versus the debt stricken euro.
The euro dropped across the board during the overnight trade as concern over Europe’s sovereign debt crisis deepened. The single region currency dived against the dollar after Spain’s Socialist party suffered its worst electoral defeat in more than 30 years and after Standard & Poor’s on May 20 said it may lower Italy’s credit rating. S&P last week cut Italy’s credit rating outlook to negative from stabile, citing slowing economic growth and “diminished” prospects for a reduction of government debt. Fitch Ratings on May 20 lowered Greece’s long-term debt ranking to B+, four notches below investment grade. Looking ahead to this week, updates on the economic growth and purchasing mangers release headline the economic calendar in the European hours. Expect for the single currency to remain under pressure against its major rivals as debt crisis is back on the agenda again.
The dollar gained across the board during the Asian session as investors run for safety of US currency. Greenback outperformed its major peers as stocks fell around the globe and Eurozone faces new wave of debt issues in its peripheral countries. However, gains in the US currency may be limited before the durable goods release and consumers spending report scheduled for this week. In addition, second reading of the first quarter GDP is scheduled for Thursday, with the expectations for the figures to remain unchanged at 1.9%.
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