The Office of National Statistics reported that manufactured output prices as measured by its producer price index rose by 4.1% in the year to February, up 0.3% points from an inflation rate of 3.8% in January.

That is the highest rate since December 2008 – a time when prices were levelling off following a surge in commodity prices early in the year and as the global recession accelerated. In the past ten years, output prices have averaged just below 2% annual inflation. Cutting out volatile elements like food, alcohol and petrol products, the index rose by 2.9% in the year to last month, up from 2.6% in January.

In Europe, German factory orders rose more than expected in January, reversing a decline in December, as domestic orders rebounded strongly, official data showed Friday.
According to data released by the Federal Ministry of Economics and Technology, Germany’s factory orders increased 4.3% month-on-month in January. Economists had forecast just 1.3% rise. The latest increase follows a decline of 1.6% in December, revised from a 2.3% fall reported initially.

In the US, the unemployment rate held steady last month as employers cut fewer jobs than expected, according to official data today that bolstered hopes that the worst of the downturn in the world’s largest economy is over.

Data from the US labor department showed that 36,000 jobs were cut in February and that the jobless rate held at 9.7%. That was a stronger result for the US labour market than economists had been expecting. The consensus forecast was for the closely watched non-farm payrolls
report to show a loss of 50,000 jobs in February and for the jobless rate to edge up to 9.8%, according to a Reuters poll.

Some forecasters had warned that the report could be even worse, given the harsh weather last month. But the labour department said the effect of the winter storms was not clear. US nonfarm payrolls fell by 36,000 in February from 26,000 in January while the unemployment
rate held steady 9.7%.

The consensus among analysts was that around 30,000 more jobs would be shed in February with the unemployment rate ticking up to 9.8%.

January’s nonfarm payrolls were revised downwards to 26,000 from 20,000.

In related data, average hourly earnings grew by 0.1% in February compared to 0.2% in January in monthly terms. Year-over-year, average hourly earnings grew 1.9% in February compared to 2.0% in January.

The ECB are expected to be among the last to increase their interest rates, which could deem positive for the medium – long term outlook for sterling if we are to increase our interest rates at an earlier date. However no indication of the future for both interest rates and asset purchasing were made by the Bank of England.
Meanwhile in the U.S. data was fairly positive, Nonfarm Productivity came in 0.3% above the 6.6% consensus figure, whilst Jobless Claims showed an on par with consensus figure of 469k (consensus 470k).

Up until this time sterling was trading at around a 3 day high of $1.5134, and around €1.1080, and although a report from Halifax reported a 1.5% drop in UK house prices sterling maintained to trade positive. However after the US data, sterling had fallen to around $1.5003.

The euro which was trading up on the day against US dollar at $1.3693, however ratings agency Moody’s announced that it will downgrade Deutsche Bank’s credit rating, which forced the euro down to $1.3549.

At 13.30 today the US employment report containing Nonfarm Payrolls will be released, which due to adverse weather will expect to show a decline of around 65,000.

Other data release includes German Factory orders at 11.00am.

This asset purchasing programme currently stands at £200bn, which was put in place to try and help the UK economy out of recession. February’s inflation report saw all 9 of the BoE policymakers reach a unanimous decision to hold QE at its current figure. However during this
report the MPC revised down its 2 year inflation forecast.

MPC member David Miles said the decision to pause QE was a “pretty finely balanced decision”. He added there could be a strong case for expanding QE further down the line.

Data from British Bankers Association which shows the number of approved home purchases fell sharply in January, from 45.65k in December down to 35.10k, consensus was at 45.30k.
These comments and data release weighed on sterling, and by 10.00am sterling had lost almost 2 cents in a 2 hour period against the dollar, moving from as high as $1.5571 to a day low of $1.5395. Against the euro, sterling initially lost around ¾ of a cent dropping to a near 4 week low of €1.1314.

Sterling did however make some recovery against the euro finishing up around 0.2%, reaching a day high of €1.1425 at around 5.00pm, as German Business Sentiment Data which gives an indication of current conditions and business expectations came in 0.6% worse than January and
0.9% below consensus, which shows that Europe may be vulnerable to a double-dip recession. Poor US consumer confidence which came in at 46.0, 10.5 worse than in January and 8.6 below consensus, causing uncertainty in the global recovery, sparking increased risk aversion, meaning
investors opting for Japanese Yen and US dollar, which are classed as safe haven currencies. By 5.00pm the euro had suffered, falling to $1.3498 from a weeks high $1.36691.

All eyes will be fixed on the revised GDP figures which are expected to rise to 0.2% from the 0.1% increase which technically exited the UK from recession last month. Any retraction from this 0.1% figure would weigh heavily on sterling.

With no data released during the course of the day, market movements were influenced purely by trade flow. Investors, banks and general transfers dictated demand for currency and subsequently left most currency pairs fairly range bound throughout the session.
At 4.00pm the pound had risen around 0.2% from its open price to €1.1379 and roughly 0.4% above the session low of €1.1347 producing a much tighter trading range than we have seen in recent weeks where movements of 1.0% -1.5% have not been uncommon.

Against the dollar, sterling rose as far as $1.5520, before returning to $1.5467 almost matching the open price. The pound hit a nine month low last week of $1.5345 after disappointing UK retail sales data released on Friday confirmed the UK public stayed away from the High Streets during
January. The media put this down to much of the UK being under a heavy blanket of snow throughout January, however analysts and economists aren’t so sure and will rely on February figures to show a dramatic correction to confirm this.

The euro and US dollar pair also remained relatively range bound, just after the European closing bell at 4.30pm GMT the euro was at $1.3593 a fraction of a cent above the open price.
Despite a slight dip during the day the US dollar has been helped by the US Federal Reserve’s discount rate rise last week which shows a positive sign the US financial system is on the mend.
In contrast, the Bank of England has left the door open for further quantitative easing. BoE Governor Mervyn King and others are due to testify in parliament later today on the central bank’s latest inflation report, where they predict consumer inflation to be well below its 2.0% target in 2
year’s time despite prices overshooting the target now.

Sentiment was also knocked after an opinion poll published on Sunday showed the opposition Conservative Party’s lead over ruling Labour had shrunk again potentially meaning by election
time neither party would gain an overall majority. Investors have become increasingly worried that a hung parliament would mean an incoming government would struggle to take the tough decisions necessary to bring down Britain’s substantial budget deficit.

Many traders and analysts have been looking forward to the revised 4th quarter GDP figures out this Friday. After the initial results at the end of January showed a lower than expected figure of a 0.1% growth, the revised figures which include all of the information required to determine true
quarterly performance are expected to move that figure up to 0.2%.

The original first estimate figure published on January 26th was expected to show 2009 4th quarter GDP was at 0.4%, showing signs the UK was recovering well and technically out of recession.
The actual figure of 0.1%, does confirm growth but only just. Now that the additional information is about to be released, if the figure of 0.1% does not increase it will bring a dark cloud over the
pound which has already lost 10 cents to the dollar since January.

·         Sterling hits 9 month low vs. dollar

·         UK Retail sales figures come in at the worst level in 18 months

·         GBP/EUR drops below 1.1370

IN THE US

·         Dollar rises broadly on Fed discount rate rise

·         Crude oil slips due to Fed rate hike

IN THE EU

·         EUR/USD drops down from 1.3530

·         Euro-zone output grows at a steady pace in Feb

·         Survey in Holland suggests majority want Greece out of Europe due to debt problem

·         Euro zone lines up €22bn Greek bailout package

At 9.00am this morning the pound was at $1.5467, €1.1373, 11.8490 ZAR, 141.689 JPY, 1.6074 CAD, 1.6639 CHF 11.18 SEK and AU$1.7212. The euro was at $1.3595 against the US dollar.

Today’s key levels of support and resistance are:

GBPUSD          Support: 1.5362 1.5251 1.5158                Resistance: 1.5566 1.5659 1.5770

GBPEUR           Support: 1.1323 1.1281 1.1201                Resistance: 1.1445 1.1525 1.1567

UK unemployment data rises by the largest amount since July 2009
BoE minutes show unanimous decision to keep rates on hold and pause quantitative easing.
Sterling gains against the euro recovering to over 1.15 level

 
IN THE US

Strong housing data helps strengthen the dollar pushing sterling back to 1.56 from 1.57
US economy shows positive signs of stabilization
Obama upsets China following confirmation of a meeting with Dalai Lama
 
IN THE EU

Euro gains against the dollar after Greek strike is called off, EUR/USD moving away from key psychological level of 1.35
Euro weakens against the dollar after risk appetite is outdone by poor European data hits.
European ministers advise Greece to put in place deficit reduction measures
 
At 09.15hrs this morning the pound was at $1.5616, €1.1526, 11.93 ZAR, 142.02 JPY, 11.29 SEK, AU$1.745, CAD 1.636, CHF 1.689. The euro was at $1.3546 against the US dollar.

 Today’s key levels of support and resistance are:

GBP/USD         Support: 1.5618, 1.5566, 1.5467              Resistance: 1.5769, 1.5868, 1.5920

GBP/EUR         Support: 1.1456, 1.1394, 1.1356              Resistance: 1.1556, 1.1594, 1.1656

EUR/USD         Support: 1.3469, 1.3503, 1.3536              Resistance: 1.3552, 1.3586, 1.3620

Sterling started yesterday on the down turn after data showed a rise in UK jobless claims; the figure came in above consensus at 23.5k against the predicted -13.5k meaning the number of Britons claiming unemployment benefit rose in January by the largest amount since July 2009.

The fall in sterling was only temporary after the Bank of England minutes were released which showed a unanimous decision of 9-0 to put a hold on its quantitative easing programme, something which has previously effected sterling in a negative way. There was some speculation over the last few weeks that some members had voted to increase its asset purchases leaving the door firmly open for further increases down the line, this was especially after Mervyn King said it was far too soon to say quantitative easing was finished, but for now at least it has bought an end to the programme. A statement released showed “All members felt that the arguments in favour of leaving the size of the asset purchase programme unchanged at this meeting were more persuasive. But for some members, the arguments were finely balanced”. The report also showed a unanimous decision to hold interest rates at the current record low of 0.5 percent.

Sterling rose in the afternoon session against the euro and clawed back some of its recent losses as investors saw the BoE minutes as positive which helped towards the previous days risk aversion, but sentiment towards the pound remains shaky. Sterling reached day’s highs of €1.1522 up from the €1.1446 days low.

Sterling’s gains were not passed on against the dollar which traded earlier in the day at $1.5814 eventually dropping to the day’s low of $1.5706 this was due to strong US housing data which was up 2.8 percent against December’s figures. This data is consistent with a stabilising economy and led the way for strength in the greenback. Industrial production data was also released which showed a 0.9 percent increase in January against a forecast of 0.7 percent.

Elsewhere the euro gained against the dollar after Greek tax collectors called off a strike which had caused concerns the unions would block spending cuts which were aimed at minimizing the European Unions budget deficit. The European ministers also told Greece to put in place other deficit reducing measures. So far the euro has lost 9.3 percent against the dollar since November 2009 where it traded at a high of $1.5144.

In the evening the Federal Open Market Committee in the US met where speculation was added that the Federal Reserve will be one of the first major banks to remove stimulus measures after an index of leading indicators increased for the 10th month in row in the Philadelphia area. The dollar also gained as gold prices fell after the International Monetary Fund said it would start selling reserves of the metal.

Public sector finance data is scheduled for release today, followed by retail sales figures Friday.

Sterling rose slightly when Consumer Price Index data came in on par with consensus at 3.5%, well above the Government’s 2.0% inflation target. Investors did not see this figure as negative as it had been widely forecast, and BoE Governor Mervyn King backed up what he said last week by stating that a surge in inflation would be temporary and price pressures would subside later this year. King said January’s rise in inflation had been driven by the reversal of a cut in value-added tax, higher oil prices and pass-through from the weaker pound. At 09.45 GBP/EUR traded around €1.1499 up from €1.1475 and GBP/USD traded above $1.57.

Sterling’s gains against the euro were short-lived as analysts views are that the euro seems to have been oversold over the past few weeks, RBS strategist Paul Robinson quoted the following, ”We are seeing a lightening of euro shorts as the market awaits developments from today’s Ecofin meeting. The euro is also gaining due to slightly better risk appetite and it feels like it may have based versus sterling for now”.

Both the euro and sterling were boosted against the dollar as a strong report on New York State Manufacturing and a better-than-expected profit at the British bank Barclays and several American companies helped push stock prices higher, helped offset worries about debt and credit across the globe. This increased risk appetite especially for the euro, by late afternoon it had gained almost 2 cents from the previous day to $1.3775 EUR/USD, and dropped back down to €1.1431 against the pound. Sterling also made headway against the US dollar, gaining over a cent on the day to $1.5792.

The euro has lost ground recently over deepening worries about swelling budget deficits in Greece and other weak economies in the region. European Union countries have pledged to provide a financial bailout to Greece if needed, but have not detailed any concrete plans. They warned on Tuesday that they would demand new spending cuts and higher taxes if Greece can’t make the deficit reductions it is promising. Greece has been given a month to show evidence it is bringing its finances back in line.

Today sees the BoE minutes released, the meeting earlier this month saw Quantitative easing on hold at its current £200bn.  The policymakers votes on the programme will be released in the minutes, analysts predict that if voting came in closer than 8-1, then the pressure could be on sterling, bearing in mind it was only last week when Mervyn King said that ‘it was far too soon to say if QE was finished.

Other data this week includes Public Sector Finance data on Thursday and Retail Sales on Friday.

·          House prices rise 6.1% last year

·          Inflation set to tip 3.0% in today’s announcements

·          Bank of England minutes out tomorrow

IN THE US

·          Quiet trading due to President’s Day

·          Dollar powers below $1.36 mark against the euro

·          Fed’s Lockhart speaks this evening.

IN THE EU

·          The euro remains under pressure against pound and US dollar

·          Greece investigated over New York Times article

·          ZEW figures out this morning

At 9.15am this morning the pound was at $1.5679, €1.1479, 12.05 ZAR, 141.109 JPY, 11.34 SEK and AU$1.7531. The euro is just above last nights lows against the US dollar at £1.3654

Today’s key levels of support and resistance are:

GBPUSD                Support: 1.5603 1.5551 1.5492        Resistance: 1.5714 1.5773 1.5825

GBPEUR                Support: 1.1489 1.1464 1.1441        Resistance: 1.1537 1.1560 1.1585

EURUSD                Support: 1.3654 1.3615 1.3585        Resistance: 1.3679 1.3705 1.3739

In the quarterly inflation report the central bank forecasted inflation would stand at just 1.2 percent in two years well below its 2 percent target, if interest rates continue to rise as fast as markets predict. The increase in VAT and higher petrol prices continue to push prices up. In December the official rate of inflation reached 2.9 %. If at any time inflation moves above 3% the governor is required to write a letter of explanation directly to the chancellor. According to the BoE projection inflation will fall again quickly and could remain below the 2% target for several years.

The forecasts are based on the assumption that rates would start to rise in the third quarter, but these predictions may mean interest rates will continue at the current record low of 0.5 percent for much longer then first thought. The BoE report said that the recent GDP figures which showed the UK only just scrapped out of technical recession could show growth by up to 3.5% by early 2012, though this is still uncertain.

Mervyn King added further fuel to the fire by stating that it was “far too soon” to dismiss any further increases in their asset buying programme, as at some point it may again become necessary to inject further liquidity into the economy. Recently the programme was frozen at 200 billion pounds.

The governor added that he expected “a gradual recovery” in the UK economy over the up coming year but for the time being the overall picture is negative and will cause continued problems for the pound, especially as the economy is unlikely to return to the levels we saw before the economic crisis for a considerable period.

There was a mixed reaction to the governor’s comments as we saw the FTSE 100 rise by 0.3% whilst many investors went for the safe haven of less riskier currencies such as the dollar.

In the UK we saw stronger then expected industrial production date which leads many to believe we will see a revised up quarter four GDP figure.

Elsewhere the euro gained after a proposed EU bail out package which would help the fiscal situation in Greece.

In the US a negative Trades Balance was released which shows the value between imported and exported goods and services during the reported month the negative number shows as a country they are importing more then they are exporting.