Wise Money growth v inflation debate continues
There was further evidence on Friday of the difficulty that the Bank of England face over near term base rate decisions.
UK Gross domestic product rose 0.4% in the first quarter, which is the slowest since the start of 2005. Year on year growth came in at 2.5%. Perhaps, support for the MPC members who voted for a reduction that is until UK consumers inflations expectations are taken into account.
A survey also released on Friday set a record high for a second consecutive month when it showed that consumers expect prices to rise by 3.8% in the next 12 months. So it could be that the sharp rise in inflation expectations makes the MPC think twice about lowering rates.
It seems that market participants are increasingly taking the view that the Bank of England may slow the pace of interest rate cuts as indicated by UK government bonds.
The yield on the 2 year gilt pushed to the highest level in four months over concerns for UK inflation and speculation that the worst of the credit crisis is over.
Possible credit market easing has led to the unwinding of safe-haven trades globally as investors move out of bonds and back to stocks. Particularly in Japan where yields on 5 year government bonds rose the most since 1999 after consumer prices soared 1.2% in March from a year earlier.
The Pound had been heading for a weekly drop against the dollar but managed a fight back on Friday as traders took profit on the possibly excessive move of the previous few days.
The UK currency has given up 4% against the dollar over the past six months and may remain under pressure on indications that the Fed may be nearing the end of its monetary easing cycle.
Market sentiment that the Federal Reserve will probably stop cutting interest rates also allowed the dollar to post its biggest weekly gain in a month against the euro.
This was despite US consumer confidence falling to a 26 year low amid fears of record gasoline prices and rising unemployment. The university of Michigan sentiment index decreased to 62.6 in April from 69.5 the previous month.
As we head into the week with the FOMC announcing its decision on the Fed Funds rate on Wednesday, futures contracts now show there to be a 24% chance the target rate will stay at 2.25% up from 2% a week ago.
The majority of the remaining probability is for a 25 basis point reduction.
The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.
UK Gross domestic product rose 0.4% in the first quarter, which is the slowest since the start of 2005. Year on year growth came in at 2.5%. Perhaps, support for the MPC members who voted for a reduction that is until UK consumers inflations expectations are taken into account.
A survey also released on Friday set a record high for a second consecutive month when it showed that consumers expect prices to rise by 3.8% in the next 12 months. So it could be that the sharp rise in inflation expectations makes the MPC think twice about lowering rates.
It seems that market participants are increasingly taking the view that the Bank of England may slow the pace of interest rate cuts as indicated by UK government bonds.
The yield on the 2 year gilt pushed to the highest level in four months over concerns for UK inflation and speculation that the worst of the credit crisis is over.
Possible credit market easing has led to the unwinding of safe-haven trades globally as investors move out of bonds and back to stocks. Particularly in Japan where yields on 5 year government bonds rose the most since 1999 after consumer prices soared 1.2% in March from a year earlier.
The Pound had been heading for a weekly drop against the dollar but managed a fight back on Friday as traders took profit on the possibly excessive move of the previous few days.
The UK currency has given up 4% against the dollar over the past six months and may remain under pressure on indications that the Fed may be nearing the end of its monetary easing cycle.
Market sentiment that the Federal Reserve will probably stop cutting interest rates also allowed the dollar to post its biggest weekly gain in a month against the euro.
This was despite US consumer confidence falling to a 26 year low amid fears of record gasoline prices and rising unemployment. The university of Michigan sentiment index decreased to 62.6 in April from 69.5 the previous month.
As we head into the week with the FOMC announcing its decision on the Fed Funds rate on Wednesday, futures contracts now show there to be a 24% chance the target rate will stay at 2.25% up from 2% a week ago.
The majority of the remaining probability is for a 25 basis point reduction.
The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.
Labels: credit crunch, FED, FOMC, interest rates, UK inflation, wise money
posted by Wise Money @ 10:40 AM
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