In subdued trading, the pound had a mixed day on the fx markets on Monday ahead of a raft of UK data out this week including the publication tomorrow of the minutes of the Bank of England meeting from 4 and 5 May together with inflation, housing market, retail sales and unemployment data all due out over the course of this week. The pound made gains against the US, Canadian and New Zealand dollars but fell against the majority of the other currencies that make up the 16 most actively traded currencies.
Last week, the pound gained ground after the publication of the quarterly inflation report from the Bank of England which brought forward the expectation of an interest rate rise in the UK from February 2012 to December 2011. However, the negative impact of the government’s austerity measures on the economic recovery continues to weigh on the currency.
The euro got off to a shaky start this week as the markets focused on the possible impact of the arrest of the IMF chief Dominique Strauss-Kahn on the region’s efforts to contain its debt crisis. The IMF has had a key role as it has stumped up money in the bail-outs of Greece, Ireland and Portugal. Officials in Brussels are doing their best to reassure markets that the arrest of Mr Strauss-Kahn, who has been charged with the alleged sexual assault of a New York hotel maid, will not derail efforts to deal with Europe’s debt crisis.
“I would like to reassure public opinion, the markets and the press, there’s absolutely no question: decisions which are under way will not be impacted and this will not have an impact on the [bail-out] programmes being applied,” a European Commission spokesman said.
The pressure on the euro proved short lived as it received a boost after data showed euro zone inflation reached a 30 month peak in April prompting speculation the European Central Bank (ECB) may consider increasing euro zone interest rates again as early as July, despite the extra pressure this would put on the weak peripheral nations already struggling with their sovereign debt.
Data from Eurostat, the EU’s statistics agency showed that prices across the 17 countries sharing the euro rose 2.8% in the year to April, up from the 2.7% rate seen in March. April’s data was the fifth month running in which inflation was above the 2% limit set by the ECB.
Data released on Friday last week showed the region’s economy expanded at a faster pace than expected in the first quarter of this year, growing 0.8% on the three months ending December 2010, which has helped companies to pass on the rising costs of their raw materials.
In the end, the markets were reassured that it was ‘business as usual’ at the EU finance ministers meeting as ministers gave the green light for a €78 billion bailout for Portugal and increased pressure on Greece to take more steps to address its debt problems. Debt talks are set to continue today.