Bank of England Minutes Boost Pound, While Greenback Extends its Gains vs Other Rivals

Daily Forex Fundamentals | Written by CMS Forex | Jul 23 08 21:54 GMT |

UK Mortgage Lending Continues to Fall in June, Manufacturers Orders Weak as Well We begin in the UK, where banks approved 21,100 mortgages in June, another fresh record low for the series that started in 2001. Weak lending is causing a contraction in the housing sector that has seeped into other parts of the economy. In a second release, an index of orders placed with UK manufacturers fell -8, slipping back into negative territory after posting a positive reading in June, for the first time in 3 months. UK: Minutes See 3 Way-Split Decision,Besley Votes for Rate Hike The two releases were overshadowed by meeting minutes from the Bank of England, which showed a 3 way split of the Committee. Timothy Besley voted to increase rates, the first to do so in about a year, while David Blanchflower voted to lower rates, the same as the last meeting. With the economy facing weaker growth but higher inflation the rest of the members voted to keep rates steady. GBP/USD - Pound Boosted by Hike Vote in Minutes The extra hawkish vote gave the Pound strength as it means the Bank may be more concerned with lowering inflation and will sacrifice some growth to achieve it. The Pound-Dollar pair rallied 100 pips, climbing back above the 2 to 1 level it relinquished yesterday. The US had a slight rally following the NY open, as generally the greenback was stronger for a second day against other currencies. EUR/USD - Greenback Gains for Second Day The Euro-Dollar pair fell in favor of the greenback, extending its gains from yesterday, as the plan to bail out Fannie Mae and Freddie Mac progressed through Congress. The pair tested the 1.57 level in NY trading and was pressured overnight by a report showing weaker industrial orders in the euro-zone. EUR/GBP - Pound Surges 80 Pips vs Euro on Central Bank Outlook With the Euro weaker and the Pound stronger, the Euro-Pound pair slid 80 pips to test 0.7850. This is a 5-week low for the pair, as it broke below the key resistance of 0.79. EUR Industrial Orders Fall 3.5% in May Euro-zone industrial orders disappointed forecasts for the May period, falling 3.5%. The consensus forecast was for a drop of 1.3%. European exports are facing slower demand from the US and the UK, just as the domestic economy is sputtering. CAN Consumer Producer Index Climbs to 3.1% Headline Annual Rate as Gas Prices Rise In Canada, the annual inflation rate jumped to 3.1% in June, from May's 2.2%. On a monthly basis, the CPI rose 0.7%, cooler than May's 1%, but higher than forecasts. The core rate was only up 0.1%, as high gas prices were the main culprit. The data is worrisome for the central bank but it is more likely to limit consumer spending on other goods, weakening the economy. USD/CAD - Greenback Strength Matched Loonie's Boost From CPI Data The USD/CAD saw some Loonie strength following the CPI data but it stalled near 1.0060. The pair seems to be consolidating in a narrow range near 1.01, after yesterday's rally by the greenback. AUS Consumer Inflation up 1.5% in 2nd Quarter, Up 4.5% on Year Australian inflation rose 1.5% in the 2nd quarter and 4.5% compared to a year ago. Both figures were above forecasts but may not have much effect on expectations for the Reserve Bank of Australia. In last week's minutes, they stated that June's reading would be high, but with domestic growth slowing, the RBA is likely to stick to the sidelines now. AUD/USD - Aussie Falls As RBA Seen on Sidelines Now Therefore, despite the higher headline number, the Aussie-US Dollar pair fell in favor of the greenback following the release, and again overnight. The pair fell to the 0.96 level in later NY trading. That's about 180 pips lower than yesterday's high and is 230 pips lower than its 25-year high set last week near 0.9850. Upcoming Releases The reserve bank of NZ decides on rates at 5 PM EST, following by Japanese trade balance. Overnight, Germany and the Euro-zone release preliminary measures of services and manufacturing PMI. Germany will also post its IFO business climate index. Also overnight we get retail sales data from the UK. Tomorrow morning the US will release its figure for weekly jobless claims and data on existing home sales. Capital Market Services, L.L.C. www.cmsfx.com ©C2004-2005 Globicus International, Inc. and Capital Market Services, L.L.C. Any information in this report is based on data obtained from sources considered to be reliable, but no representations or guarantees are made by Capital Market Services, L.L.C. with regard to the accuracy of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. 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