Thursday 10th July 2008
Little move again on exchange rates overnight, with EUR/USD continuing to be supported on the down side. It looks likely that the Euro will find buyers at 1.5680 which is a strong technical support level for the Euro before continuing its move down towards 1.5555.
Oil prices remained firm at $137 a barrel with Gold also remaining stable at the 928 level. It is worth noting that the Dollar tends to strengthen when commodity prices stabilise or fall.
In the UK, the MPC are due to meet today at 12:00 with expectations for a hold in UK base rates at 5%. This fits in with the vote at the Times shadow MPC meeting, which voted 8-1 in favour of holding base rates at 5% with ex member Wadhwani calling for a 25bp cut. The outcome of the ‘real’ MPC vote is likely to be very similar.
Consumer conditions in the UK continue to worsen with reports out showing that over the last month alone, the average family’s shopping bill has risen by £50. This is an obvious reflection of inflationary pressures, but concern will be that with this massive increase in core expenditure, households will make do without, or with significantly less spending on other items deemed as luxury.
In the US, FED members Hoenig and Yellen are calling for interest rates to return to neutral sooner rather than later. This implies that the differential between the Fed funds rate and the US inflation rate must diminish with the easiest way to accomplish this being a swift move up in US interest rates. This should have the effect of being Dollar supportive.
US weekly jobless claims are expected to be lower, falling from 404,000 last week to less than 380,000 in the last survey.
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