MPC Hawk Argues Slower Growth Will Dampen Inflation
Sterling fell against both the dollar and the euro on Monday subsequent to an interview which appeared in the morning press with Andrew Sentance, a member of the Bank of England's monetary policy committee.
Sentance argued in the interview that the combination of a weakening housing market, the credit squeeze and higher commodity prices is placing significant pressure on consumers which should slow economic growth and so, "Help to offset the upward pressure we are seeing on inflation."
Whilst not disputing the risk posed by inflation, the comparatively dovish tone of Sentance's comments, particularly on the subject of rising pay demands, contrast with those made by Mervyn King and the Chancellor at last week's Mansion House dinner.
Sentance's views on slowing growth in the UK economy were supported by a report also released yesterday by Britain's most used property website, which showed that the average asking price a home dropped 1.2% during May. On the back of these factors, EURGBP reached 0.791 in early trading before eventually closing the day down 1% at 0.789.
The pound was also weak against the dollar, slipping to 1.9586 before mounting a slight recovery to end the day down 0.5% at 1.9644.
Following the release of two reports which illustrated that the eurozone may now also be suffering similar issues to those faced by the US and UK, the euro fell against the dollar closing at 1.551, down 0.6% for the day.
Firstly the German Ifo business survey supported the results of last week's ZEW index by reporting that business confidence within Germany has fallen this month to the lowest level since 2005.
The index reported that the sharpest decline in confidence took place within the heavy industry and manufacturing sectors and this was reinforced by data from the eurozone's Manufacturing Purchasers Index, which showed that the strength of the euro combined with high oil prices is taking a considerable toll on manufacturing.
Despite this, markets are still expecting the ECB to raise interest rates to 4.25% next month.
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.
Sentance argued in the interview that the combination of a weakening housing market, the credit squeeze and higher commodity prices is placing significant pressure on consumers which should slow economic growth and so, "Help to offset the upward pressure we are seeing on inflation."
Whilst not disputing the risk posed by inflation, the comparatively dovish tone of Sentance's comments, particularly on the subject of rising pay demands, contrast with those made by Mervyn King and the Chancellor at last week's Mansion House dinner.
Sentance's views on slowing growth in the UK economy were supported by a report also released yesterday by Britain's most used property website, which showed that the average asking price a home dropped 1.2% during May. On the back of these factors, EURGBP reached 0.791 in early trading before eventually closing the day down 1% at 0.789.
The pound was also weak against the dollar, slipping to 1.9586 before mounting a slight recovery to end the day down 0.5% at 1.9644.
Following the release of two reports which illustrated that the eurozone may now also be suffering similar issues to those faced by the US and UK, the euro fell against the dollar closing at 1.551, down 0.6% for the day.
Firstly the German Ifo business survey supported the results of last week's ZEW index by reporting that business confidence within Germany has fallen this month to the lowest level since 2005.
The index reported that the sharpest decline in confidence took place within the heavy industry and manufacturing sectors and this was reinforced by data from the eurozone's Manufacturing Purchasers Index, which showed that the strength of the euro combined with high oil prices is taking a considerable toll on manufacturing.
Despite this, markets are still expecting the ECB to raise interest rates to 4.25% next month.
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: Bank of England, credit crunch, inflation, Sterling
posted by Wise Money @ 7:30 AM
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