18/02/2008- The British economy generated some intriguing inflation figures. First was the Producer Price Index, which measures manufacturers’ changing costs (input) and the prices they are charging for products as they leave the factory (output). Because they represents the first two steps on the way to the shop, PPI input and output prices are a pointer to what will eventually happen to consumer prices. In the year to January input prices went up by 19 per cent and output prices by 6 per cent. Those are high numbers indeed, well above what economists had been predicting.
Investors therefore braced themselves for a high Consumer Price Index on Tuesday. They need not have bothered. CPI inflation, the figure that the Bank of England is supposed to keep at 2 per cent, came in at 2.2 per cent. It was above target but by nowhere near as much as Monday’s PPI prices might have suggested. The below-forecast number might have prompted a Sterling sell-off but the Bank of England published its quarterly Inflation Report the following day. The report played down the probability of a further three rate cuts this year, citing the upward pressure on inflation that such action would cause.
A more worrying idea from the Bank came at Governor Mervyn King’s press conference afterwards. He looked ahead to “a more difficult and challenging period than we have seen in the past.” Given how difficult and challenging the financial markets have been in the last six months that was not at all what we wanted to hear.
For the Dollar it was a difficult and challenging week, at least against the European currencies. The good news from the US economy took the form of things not going down (retail sales) and not going up (the trade deficit). The bad news included deterioration in two important measures of consumer confidence and a sharp downturn in the New York Fed’s survey of manufacturing activity.
The two top men in the US financial world, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke appeared side by side in front of the Senate Banking Committee. Secretary Paulson had little useful to offer so it fell to Mr Bernanke to make the running. He gave his usual quiet and convincing performance. Unfortunately he convinced everyone that US interest rates would continue to move lower. This was not instantly helpful to the Dollar.
Sterling/Dollar has done a lot of work recently but it has been like trying to run through treacle; in the last month it has gone nowhere. Whilst it is tempting to look forward to renewed weakness in the US economy and its currency, buyers of the Dollar should hedge at least half their requirements, selling Sterling forward to match expected payment dates. Judicious stop orders should be used to protect against the relapse that is still a possibility.
Source: Moneycorp
Advice International Payments
If you are buying a property abroad, emigrating, or transferring money overseas you will have to make your payment in the currency of that country. Given the sums of money involved in such a transaction and the associated additional costs, you will no doubt want to save money wherever possible. If transferring sums over a period of time you will also want to ensure that the cost of the funds does not increase due to an adverse exchange rate movement. Learn how to get the most from your money here Foreign Currency Advice
