Wednesday June 4th 2008
The USD strengthened yesterday afternoon on comments made by Fed Chairman Ben Bernanke. Breaking with tradition and commenting on currency matters, typically the domain of the Treasury Secretary, Bernanke made clear the US does not want any further USD weakness given the risk this poses to inflation. Bernanke also commented that interest rates are well positioned to promote growth and stable prices signalling the Fed is done cutting borrowing costs. The dollar rallied 0.2% against sterling and 0.6% against the euro. Oil and gold prices also fell following the comments to $126 and $875 respectively.
Earlier in the day European GDP growth came in stronger than expected at 0.8%, beating analyst forecasts of 0.7% for the first quarter. Investment and construction spending helped the region weather record oil prices and impacts of the stronger Euro. Annual growth at 2.2% was on par with expectations. Any gains the Euro made were erased by the comments made by Bernanke later in the day.
This morning Nationwide has already released its UK consumer confidence survey which fell to its lowest level since 2004. Cost of living increases and negative housing sentiment continuing to concern consumers. These are key themes the BOE will be considering ahead of its interest rate announcement tomorrow. The latest Bloomberg economist survey had all 60 polled economists expecting the BOE to leave rates unchanged.
Also to be released today is UK and Euro PMI service numbers, analysts are expecting no change in Euro PMI and a slight increase from 50.4 to 50.5 in the UK. European retail sales for April will be released at 10am and the US announces its ISM non manufacturing numbers at 3pm.
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