Monday May 9, 2005 - 09:47:43 GMT
Share This Story
INVESTICA Ltd - www.investica.co.uk
UK stagflation fears
Sterling was pushed down to 1.89 by the stronger than expected US employment report on Friday and the UK currency remained on the defensive in early Europe on Monday, undermined to some extent by unease over the UK economy as well as the strength of the dollar. Sterling was subsequently damaged by the UK economic data.
The producer price data recorded a stronger than expected increase in producer prices of 0.7%, although the underlying increase was contained and the annual increase in input prices eased. The industrial production figures will be the main focus with a 1.2% monthly decline. Excluding the jubilee holiday effect in 2002, the monthly decline was the worst performance in over 10 years. The sharp decline in production will damage near-term confidence in the economy's growth prospects.
The combination of a rise in inflation and weaker output will put conflicting pressures on the Bank of England. The bank will be reluctant to increase rates while there are signs of weaker demand, but the inflation rise will be a concern. The bank may decide that it can afford to wait for now, but there is a 50% chance of an increase today on inflation fears. Given the growth concerns, a rate increase would probably not offer sustained support to Sterling due to fears of stagflation.
The latest IMM positioning report recorded a decline in long Sterling contracts of close to 4,000 in the latest week, cutting the long position to just below 20,000. There will still be the risk of a cutting of long Sterling positions and this will limit the potential for Sterling rallies.
Forex Trading News
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
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."