Today's Interbank rates -
POUNDS TO US DOLLARS 1.6145
POUNDS TO EUROS 1.1913
POUNDS TO AUSTRALIAN DOLLARS 1.6141
EUROS TO US DOLLARS 1.3549
EUROS TO POUNDS 0.8399
EUROS TO AUSTRALIAN DOLLARS 1.3547
POUND HEADLINES:
- A choppy day for sterling markets yesterday, as initial relief that the January CPI came in at 'just' 4.0% gave way to fears of a near term rate hike following comments in the BoE Governor's latest open letter to the Chancellor. The Bank of England Governor appeared to give credence to the market's view that the MPC will raise interest rates by 25bp by May, noting that 'under the assumption that Bank rate increases in line with market expectations' inflation is as likely to be above 2% as below over the medium term. However, the letter was not an unequivocal endorsement of this view.
- Focus now turns to today's all-important inflation report for a clearer steer on the policy outlook. Although Governor King has already given a strong clue as to the profile of its pivotal inflation fan chart, the tone of the report and, more importantly, the comments made by king in the accompanying press conference will be instrumental in guiding market sentiment. Expect another choppy day.
- UK unemployment rose by 44,000 to almost 2.5 million in the three months to the end of December. The UK unemployment rate is now 7.9%. The number of people claiming Jobseekers Allowance increased by 2,400 last month to 1.46 million.
- The Euro may have benefited slightly from the agreement that the ESM will have a full EUR 500bn to play with, though this was hardly unexpected, and isn't relevant until 2013. Weaker year-on-year Greek GDP growth is perhaps more relevant, but as the market is already assuming some sort of Greek restructuring, didn't have a significant impact.
- The eurozone economy grew by 0.3% in the final quarter of 2010, slightly weaker than expected. This was the second quarter of 0.3% growth in the 16 countries using the euro at the time.
- The growth figure for the 27 countries that make up the EU as a whole was 0.2% in the fourth quarter. For 2010 as a whole, GDP increased by 1.7% in both the eurozone area and the full EU area.
- In the US, the main focus today will be the January PPI report. We expect PPI inflation to have slowed from an annual 4.0% in December to 3.5%, with the core rate at just 1.2%.
- US housing starts and industrial production are also due. These are expected to confirm that the expansion continues apace, with housing starts forecast to rise to 555k and IP by 0.7%m/m. This will be the first with the new (more hawkish) voting panel.
- US sales rose by 0.3%, less than analysts' expectations of a 0.6% increase, as extreme weather in large parts of the country kept some shoppers at home. On an annual basis retail sales were up 7.8% from January 2010.
Kris Charalambides
Tel: 0207 183 2790
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