User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday February 11, 2008 - 11:20:39 GMT
Lloyds TSB Financial Markets -

Share This Story:
| | Email

Economics Weekly - Inflation expectations matter for future price developments; Weekly economic data preview - Bank of England quarterly Inflation Report and key UK data feature

Economics Weekly 11 February 2008

Inflation expectations matter for future price developments

Are central banks taking risks with inflation?
Inflationary pressures around the world intensified in 2007. The reason was faster than expected growth in the global economy. This occurred despite the doubling of oil prices and the bursting of the housing market bubble in the US and the subsequent crisis in credit markets. But this faster pace of growth was also accompanied by higher than expected price inflation. Interest rates were raised in response in 2007, but are now being cut in those countries that were most affected by earlier rate rises and the credit crisis. So interest rates are not being uniformly cut around the world, however. There have been rate rises in China, New Zealand and Australia, to name just a few. But there have been sharp rate reductions in the US - to 3% currently from a peak of 5.25% in August last year - and more modest cuts in Canada and the UK. Official rates, however, have remained on hold in the eurozone at 4% in this period. One of the key reasons why official rates are being raised in some economies is to head off heightened inflation expectations. Studies over many years have shown that higher actual future inflation is a function of where prices are expected to be - as much as from cost push pressures and from demand-pull factors. Most central banks around the world accept that there is a need to keep inflation expectations low in order to prevent higher actual inflation later. So where are inflation expectations in the US, UK and Eurozone and what influence might they have on actual inflation and hence official interest rates in the year ahead?

Inflation expectations are rising
Starting with financial market expectations, chart a shows that there has been a sharp rise in inflation expectations in all of the economies concerned. In the US, inflation expectations are elevated, but the Fed is still cutting rates, because it argues economic growth will slow sharply and that inflation will fall back in the medium term so justifying cutting now, even with rising price inflation. Worryingly for the Bank of England, which is also cutting official interest rates, inflation expectations are also rising. In Europe, they are also high and rising, but the ECB is not yet cutting official interest rates. Why does this matter? Charts b, c and d, show that rising inflation expectations are correlated with rising actual inflation, so cutting official interest rates when inflation is rising risks embedding it into the price setting structure of the economy. The danger is that this is hard to eradicate and the cost, in terms of lost output (and higher unemployment) in the future, from having to push up interest rates to higher levels, is greater than if rates were kept a little bit higher today. But central banks are well aware of this risk. This is why in the accompanying statement to the recent MPC decision, after the committee voted to cut rates by a quarter of one percent to 5.25%, the lowest since May last year, stated: "Given this outlook for inflation, some slowing of demand growth, by reducing the pressure on capacity, is likely to be necessary to return inflation to target in the medium term. The Committee needs to balance the risk that a sharp slowing in activity pulls inflation below the target in the medium term against the risk that elevated inflation expectations keep inflation above target.”

A similar view was expressed by the ECB at its meeting in February. The main message from the ECB remained its worries about price inflation and is a clear sign that it will not tolerate second-order effects (i.e., higher wage inflation as a result of higher price inflation). So a top priority, the ECB says, is the anchoring of expected inflation, which is even more crucial at times like these when above-target inflation is expected to persist for “a protracted period.” Price risks are “confirmed” to the upside, ECB President Trichet insisted, even as growth slows. This, to us, means that the ECB will pay close attention to the evolution of inflation expectations.

What does the evidence suggest about central bank reaction to rises in inflation expectations?
We have used household inflation expectations, as these are most important in spreading actual inflation in the wider economy, for the US, UK and eurozone. Charts e,f and g show that there is a very strong correlation between changes in official interest rates and in inflation expectations. In the US, the Fed’s rate setting during the last 5 years has been to encourage price inflation expectations. In other words, Fed rates have been below inflation expectations. Currently, the Fed is once again cutting interest rates even though household price inflation expectations remain high. This is not so the case for the UK, where there is a closer link between actual interest rates and inflation expectations. But the UK has still cut official interest rates even though inflation expectations are rising, though rates are coming down from a high level. Some argue that labour market trends suggest that inflation will be contained, due to high levels of immigration and greater participation in the active workforce of the UK labour market. However, the jury is still out on this and in the meantime interest rates are likely to be cut further. Inflation expectations will limit the room for rate reductions, however, by the extent that they remain high, particularly if the MPC is serious about taking them into account.

The ECB is much more serious about inflation expectations than many other central banks. The chart shows that the ECB does not cut official short term interest rates if expectations are rising. This would imply that there will be little or no rate cuts from the ECB this year, unless inflation expectations fall back. But the key point is that inflation expectations are still rising. The ECB will not raise rates, but the risk is that the current credit market situation clears up and actual price inflation – currently well above the target of at or below 2%, at 3.2% in the year to December - does not fall back and inflation expectations remain high. In that case the ECB will raise interest rates. In short, we need to watch the data for inflation expectations as much as for actual price inflation. In addition, comparing the path of official interest rates and inflation expectations would seem to us to be a good guide to whether the current monetary policy stance is too loose, too tight or just about right.
Trevor Williams, Chief Economist

Weekly economic data preview W/c 11 February 2008

Bank of England quarterly Inflation Report and key UK data feature

The Bank of England is likely to revise up its 2-year inflation forecast and dampen GDP growth expectations in its quarterly Inflation Report, published at 10:30 on Wednesday morning. Data showing stronger producer and consumer inflation rates in January are likely to justify this view in the run up to the release. UK labour market and the latest external trade data are also due for publication. In the US, advance retail sales, external trade, Treasury International Capital Systems (TICS) data and Empire State manufacturing and University of Michigan confidence surveys for February are released. Also in the US, Fed Chairman Bernanke testifies before the Senate Committee on Thursday, presenting his latest GDP and CPI inflation forecasts, which will help inform markets about future cuts in Fed funds rates. In addition, the first estimate of EU-13 Q4 GDP and the German ZEW investor survey for February may help clarify the extent of economic slowdown in the eurozone. This data will be particularly interesting following President Trichet's downbeat comments on economic growth during his press conference last week. Q4 EU-13 GDP will complete the provisional picture of 2008 growth performance in the major economies, see chart 1. Elsewhere, we expect the Swedish central bank to hold rates at 4% at its monthly meeting on Wednesday and the Bank of Japan to hold at 0.5% on Friday.

UK economic data could underpin the view that CPI inflation is rising, and that the Bank of England is justified in not replicating the Fed's aggressive action to cut interest rates. In the run up to the publication of the Bank of England's quarterly Inflation Report, which outlines the Bank's future view on inflation and growth over a two year horizon, data on current inflation will add to speculation about the contents of the report. On Monday, producer input prices for January may be lower on the month, but up 12.9% on the year, well above factory gate prices, which may be higher on the month and to 5.1% on an annual basis. Excluding food, drink and tobacco, factory gate inflation of 2.6% suggests that companies may be taking a hit on profits, weighing on stock markets. On Tuesday, CPI inflation for January, may begin its ascent to almost 3% later in the year, see chart 2, coming in at 2.4% annual growth, up from 2.1% in December. Labour market data published Wednesday may start to show a slight easing in the jobs market, but on the whole, employment and earnings growth is still looking solid. Official (DCLG) and RICS house prices also feature this week, along with the BRC retail sales monitor, providing useful information on the housing market and the trading situation in the high street.

• The key US policy event this week is Fed Chairman Bernanke's testimony to the Senate Committee on Thursday, during which he is expected to revise down his 2008 GDP growth forecast from the current midpoint of 2.1%, but revise up the core PCE forecast from 1.85%. Nonetheless, advance retail sales for January, published Wednesday, could rebound to 4.5% annual growth for headline sales and 5.4% for sales excluding autos. The contents of this report may highlight the pattern of household discretionary spending and give clues as to whether or not interest rate cuts have already started to take effect. The Empire State manufacturing survey and the University of Michigan consumer confidence report will give an early indication of economic sentiment in February. On the balance of payments side, December's external trade deficit and TICS data will complete the 2007 series. We forecast a cumulative trade deficit of $711bn, lower that $759bn in 2006, and well covered by $806bn of net-long term securities inflows.

• The EU publishes its first estimate of Q4 GDP on Thursday, which is likely to provide justification for President Trichet's less hawkish stance on inflation and his increased concern over slower growth expressed during his press conference following the ECB's decision to hold interest rates at 4% last week. Our forecast is for quarterly growth of 0.4%, half the growth rate of Q3. The German ZEW survey published on Tuesday, could confirm a further deterioration in investor confidence in February.
Nichola James, Senior Economist

Economic Research,
Lloyds TSB Corporate
10 Gresham Street,
London EC2V 7AE
0207 626 - 1500

Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.</i>



Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."

Actionable trading levels delivered to YOUR charts in real-time.

Register To Test Your Amazing Trader

GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium

Mon 10 Sep 2018
AA 08:30 GB- GDP, Trade, Output
Tue 11 Sep 2018
AA 08:30 GB- Employment Decision
A 09:00 DE- ZEW Survey
Wed 12 Sep 2018
A 12:30 US- PPI
A 14:30 US- EIA Crude
A 18:00 US- Beige Book
Thu 13 Sep 2018
A 1:30 AU- Employment
AA 11:00 GB- Bank of England Decision
AA 11:45 EZ- European Central Bank Decision
A 12:30 US- Weekly Jobless
AA 12:30 US- CPI
Fri 14 Sep 2018
A 08:30 GB- GDP
AA 12:30 US- Retail Sales
A 13:15 US- Industrial Production
AA 14:00 US- prelim University of Michigan

John M. Bland, MBA
co-founding Partner,

Global-View Affiliate Program

We are starting an affiliate program to market some of our products.

Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.

Put the word "affiliate" in the email subject line.

Contact us

Start trading with forex broker Markets Cube

Max McKegg's Daily Forex Trading Forecasts

Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.

Request a TRIAL of Max's Forex Service.


Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map

Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.



By using this website, you are agreeing to our Privacy Policy and Terms of Use, and Cookie Policy

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105