NEWS / Foreign Exchange

Daily FX Commentary

The overall evidence suggests a gradual slowdown in the economy. The data will remain mixed in the short term with the Bank of England maintaining a tightening bias, but the longer-term Sterling risks will continue to build.    

Sterling has been unable to make any significant headway against the Euro, weakening to near 0.68, and dipped to lows near 1.9730 against the dollar before a tentative recovery.

The latest YouGov survey reported that inflation expectations for the next 12 months were steady at 2.5% in May compared with a peak of 2.7% in January. The stabilisation in expectations will help ease inflation fears to some extent.

The latest Nationwide house-price survey recorded a 0.5% increase in May with a 10.3% annual increase. The data suggests a slowdown, but not substantial weakness in the market at this stage. although regional variations are increasing. Mortgage approvals fell to 107,000 in April from 113,000 the previous month while net consumer lending slowed significantly.

Consumer confidence rose in May, but the CBI reported a slowdown in sales growth while prices rose. A combination of faltering consumer spending and lower house prices would pose substantial risks to the UK currency, although the near-term data is likely to be more mixed.