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Posted by fxrecommends@gmail.com on June 18, 2008, 11:38 am
The British pound is still struggling after Mervyn King's letter to
Chancellor of the Exchequer Alistair Darling which indicated that the
current high inflation rate above 3% is temporary and is to go lower
but it can rise above 4$ in the next half of this year. The inflation
rate has reached 3.3% y/y in May and the market was expecting 3.2%
and .6% m/m from .8% m/m in April. The pound declined after the data
not as the rising inflation currently does not smooth for a rate hike
but it tells that the buying power of the British pound is going lower
and the BOE is hold back from tightening as the weak growth. The high
prices can tackle the growth further as it tackles the demand. The
continued high prices of energy and commodities are going against the
demand from another side which make the British economy outlook is
threat by the recession forces which surely can dampen the demand for
the cable which was almost rises recently in the times of the
greenback weakness not on an optimistic change in UK. Today's BOE
minutes have shown that the members are split between hiking, rising
or keeping and all the options have been discussed and they are all
reasonable but what's the worst to work against it? The answer is
still flexible and unknown yet!
The greenback was depressed in the beginning of this week by No new
announcement from the G8 finance ministers concerning the greenback
depreciated value and its impact on the global inflation upside risks
currently have disappointed the greenback which has had another hit
from today's weak NY June manufacturing index which came negatively by
8.68 and the market was expecting just -1.5. The treasury secretary
Paulsen's comments have helped the greenback when he said that he
would never take FX intervention off the table and the market was
waiting for further aggressive announcement from this meeting but it
was just the repeated mantra that he is still supporting the strong
dollar policy and the US economic fundamentals are good.
In spite of yesterday dovish germane ZEW economic sentiment of May
which came negatively by 52.4, the single currency gets its
reinforcement above 1.545 from the market expectation of a coming
hike in July can go further if the inflation in EU persisted.
yesterday release of the EU HICP of May which came at 3.7% from 3.3%
in April highlighted the need for the mentioned interest rate hike
next July supporting the single currency across the broad. The ECB has
shown its inflation concerns and its readiness to act to reinforce the
price stability over the medium term. The ECB inflation target is just
2% and the rate comes out each month well above 3% this year fueled by
the high oil and commodities prices and the release of May which was
the highest among them all at 3.7%.
Best wishes
FX Consultant
Walid Salah El Din
E-Mail: mail@fx-recommends.com
http://www.fx-recommends.com
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