Wednesday, June 22, 2005
Swedish interest rate cuts weakens euro further
The euro was under continued pressure following a surprisingly strong interest rate cut by the Swedish central bank - the Riksbank - that fuelled speculation the European Central Bank might eventually follow suit.
The single European currency in late-day deals was at 1.2139 dollars against 1.2146 late on Monday in New York. The dollar was trading at 108.45 yen against 109.33 on Monday.
Analysts said pressure on the ECB was likely to have increased by the Riksbank's decision to cut its key interest rate by 50 basis points to an historic low level of 1.50% in a bid to spur economic growth following recent weak macroeconomic data.
The Riksbank also revised downwards its growth forecast for 2005 and 2006, from 3.2% for both years to 1.9% in 2005 and 2.7% in 2006.
The rate cut, which will be effective from Wednesday, was larger than expected by most financial market analysts, who had been looking for the bank to shave just 0.25 points off the rate.
The Riksbank move raises concerns about the outlook for the eurozone and ECB rates and had spillover effects onto the euro. Those concerns about growth were highlighted further this morning by disappointing French consumption data.
Official figures showed French household consumption of manufactured goods fell 0.9% in May compared with a revised 1.1% rise in April and expectations of a more modest 0.2% decline.
The later ZEW survey of German business confidence did little to alter sentiment towards the single currency and the pressure on the ECB.
The ZEW said its German economic expectations index for June climbed 5.6 points to 19.5 from 13.9 in May and expectations of a rise to 7.3.
The dollar, which was in the doldrums for much of the last couple of years on concern over the huge US budget and current account deficits, has been buoyed this week by the political cloud hanging over the EU as well as a greater emphasis on developments related to yield differentials.
While the ECB is being urged to cut rates from 2.0% to help boost anemic economic growth, the US Federal Reserve is poised to continue raising the cost of borrowing from the current 3.0% in a measured manner, possibly to 4.0% by the year's end.
Analysts said Fed rate expectations are unlikely to change too much this week given the dearth of US economic news and as a result the dollar may find it difficult to break through to new multi-month highs.
The single European currency in late-day deals was at 1.2139 dollars against 1.2146 late on Monday in New York. The dollar was trading at 108.45 yen against 109.33 on Monday.
Analysts said pressure on the ECB was likely to have increased by the Riksbank's decision to cut its key interest rate by 50 basis points to an historic low level of 1.50% in a bid to spur economic growth following recent weak macroeconomic data.
The Riksbank also revised downwards its growth forecast for 2005 and 2006, from 3.2% for both years to 1.9% in 2005 and 2.7% in 2006.
The rate cut, which will be effective from Wednesday, was larger than expected by most financial market analysts, who had been looking for the bank to shave just 0.25 points off the rate.
The Riksbank move raises concerns about the outlook for the eurozone and ECB rates and had spillover effects onto the euro. Those concerns about growth were highlighted further this morning by disappointing French consumption data.
Official figures showed French household consumption of manufactured goods fell 0.9% in May compared with a revised 1.1% rise in April and expectations of a more modest 0.2% decline.
The later ZEW survey of German business confidence did little to alter sentiment towards the single currency and the pressure on the ECB.
The ZEW said its German economic expectations index for June climbed 5.6 points to 19.5 from 13.9 in May and expectations of a rise to 7.3.
The dollar, which was in the doldrums for much of the last couple of years on concern over the huge US budget and current account deficits, has been buoyed this week by the political cloud hanging over the EU as well as a greater emphasis on developments related to yield differentials.
While the ECB is being urged to cut rates from 2.0% to help boost anemic economic growth, the US Federal Reserve is poised to continue raising the cost of borrowing from the current 3.0% in a measured manner, possibly to 4.0% by the year's end.
Analysts said Fed rate expectations are unlikely to change too much this week given the dearth of US economic news and as a result the dollar may find it difficult to break through to new multi-month highs.
# posted by Dr Search- Principal Consultant at the Search Clinic @ 2:51 PM 0 comments
links to this post
Tuesday, June 21, 2005
Euro govt bonds off lows on ECB rate cut speculation
European government bonds were off their earlier lows, benefiting from speculation that the European Central Bank may be edging closer to an interest rate reduction.
A news report citing unnamed ECB officials said the central bank is preparing to reduce borrowing costs if backed up by sufficiently weak data out of the area, boosted prices especially at the shorter dated end of the curve.
Some sections of the market are now starting to bet on the possibility of a rate reduction in September.
Last week, strong comments from European Central Bank officials ruling out a rate cut in the euro zone, hit bond prices hard. Officially, there has been no change from this stance but ECB chief Jean-Claude Trichet gets his chance to set the record straight this week. Trichet is scheduled to give speeches twice this week
Additionally, in what is set to be a quiet week data and event-wise, the focus may well fall on the Swedish interest rate decision today where a rate cut may materialise
On the currency front, the euro stayed on the back foot on mounting concerns about the prospect of political deadlock at the EU following the failure of the latest meeting of the heads of government to agree a budget
The EU summit descended into acrimony on Friday night when British PM Tony Blair held firm against French-led demands for a reduction in the 3 bln Pound "cheque britannique"
The UK government has said it will veto any bid to cut its 3 bln Pound rebate without a reform of farming subsidies, which the French refuse to discuss
Over in the UK meanwhile, gilts were also lower tracking their European counterpart
The UK data came in on the weak side, with government finances much worse than expected. Official figures revealed that PSBR stood at 8.7 bln Pound in May, higher than the 7.0 bln in the same month in 2004 and well above expectations of a 7.2 bln deficit. The figure is the highest monthly level since comparable records began in April 1993
Meanwhile, survey data from the likes of the British Banking Association and Council of Mortgage Lenders continued to show that the UK housing market is stabilising and not likely to crash.
A news report citing unnamed ECB officials said the central bank is preparing to reduce borrowing costs if backed up by sufficiently weak data out of the area, boosted prices especially at the shorter dated end of the curve.
Some sections of the market are now starting to bet on the possibility of a rate reduction in September.
Last week, strong comments from European Central Bank officials ruling out a rate cut in the euro zone, hit bond prices hard. Officially, there has been no change from this stance but ECB chief Jean-Claude Trichet gets his chance to set the record straight this week. Trichet is scheduled to give speeches twice this week
Additionally, in what is set to be a quiet week data and event-wise, the focus may well fall on the Swedish interest rate decision today where a rate cut may materialise
On the currency front, the euro stayed on the back foot on mounting concerns about the prospect of political deadlock at the EU following the failure of the latest meeting of the heads of government to agree a budget
The EU summit descended into acrimony on Friday night when British PM Tony Blair held firm against French-led demands for a reduction in the 3 bln Pound "cheque britannique"
The UK government has said it will veto any bid to cut its 3 bln Pound rebate without a reform of farming subsidies, which the French refuse to discuss
Over in the UK meanwhile, gilts were also lower tracking their European counterpart
The UK data came in on the weak side, with government finances much worse than expected. Official figures revealed that PSBR stood at 8.7 bln Pound in May, higher than the 7.0 bln in the same month in 2004 and well above expectations of a 7.2 bln deficit. The figure is the highest monthly level since comparable records began in April 1993
Meanwhile, survey data from the likes of the British Banking Association and Council of Mortgage Lenders continued to show that the UK housing market is stabilising and not likely to crash.
# posted by Dr Search- Principal Consultant at the Search Clinic @ 1:38 PM 0 comments
links to this post
