Sunday 14 March 1999
"The pound will be able to keep its gains [and could rise further]," said Ryan Shea, an economist at First Chicago Bank. "The tone of economic growth over the last couple of weeks has been supportive of the view that the economy is not going into recession. Growth will continue to surprise more than it has in the past."
The pound rose 1.65 per cent against the dollar and 0.7 per cent against the euro in the past week. Recently it was at $1.6340 and at pounds 0.6698 per euro.
A report due on Wednesday is expected to show that the unemployment rate stood at 4.6 per cent in February, while the number of people out of work and claiming benefits rose by 1,000. A bigger-than-expected jobs gain could reinforce the bullish outlook for sterling, traders said.
Still, other reports are likely to indicate that inflation remains benign, suggesting that the central bank has some scope for reducing interest rates this year. "Reports this week will probably remind us that we're not at the trough in the interest rate cycle," said Kit Juckes, currency strategist at NatWest Global Financial Markets.
Figures due on Wednesday are expected to show that growth in wage costs slowed in the three months to the end of January while average earnings growth slowed in the three months ending December. Retail sales figures are expected on Thursday.
Some traders turned bullish on the pound last week after the Government released a Budget that includes extra spending and tax cuts. These could generate growth and reduce the need for further central bank rate reductions. "We're bullish on sterling," said David Bloom, an economist at HSBC Markets. "The economy is going to bounce back."
The outlook for the euro worsened on Friday after economic reports highlighted tame inflation and economic slowdown in Europe. These reinforced expectations for lower interest rates that could tarnish the its allure.
German and French consumer prices barely budged in February, while Italy's economy contracted in the fourth quarter. Those figures give the European Central Bank room to lower its benchmark rate from 3.0 per cent soon.
"We've only seen bad euro numbers," said Steven Post, a currency trader at Bank Artesia in Amsterdam. "I don't think this euro retreat [from low levels] will last."
June euro interest-rate futures contracts indicate that three-month yields will be 2.93 per cent by then, 12 basis points below their current level, suggesting that about a 50 per cent chance the ECB will lower the rate by 25 basis points by then.
Expectations for a euro-region rate cut deepened on Thursday with the sudden resignation of German finance minister Oskar Lafontaine, who repeatedly urged the central bank to lower rates.
Investors speculated that Mr Lafontaine's departure may give the ECB greater freedom to spur growth without jeopardising its independence or damaging its credibility.
- 1 This is what happens when you tattoo Charmander on yourself, drunk, and with no experience
- 2 BBC election debate: The one photo that summed up the whole 90-minute leaders debate
- 3 18th century sex toy found in 'toilet of sword fighting school' in Poland
- 4 The Batman v Superman: Dawn of Justice trailer has leaked – watch
- 5 Rebecca Francis accuses Ricky Gervais of using 'influence' to target female hunters after receiving barrage of death threats
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
If I’m being racially abused I don’t need a white stranger with a saviour complex to rescue me
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
Russian warships in English Channel 'to conduct anti-aircraft and anti-submarine military drills'
iJobs Money & Business
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...
£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...