Currencies

Monday May 12, 02:38 PM
Forex - Pound consolidates gains on record producer prices, dollar slips

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LONDON (Thomson Financial) - The pound consolidated its earlier gains, triggered by figures showing UK producer prices rose at their fastest pace on record during April.

Input prices rose 2.4 percent, well above analyst forecasts of

a 2.0 percent rate, for a big 23.0 percent annual gain. Output prices were up 1.4 percent on the month, double expectations for just 0.7 percent. All the figures were the highest since records began in 1986.

The figures boosted the pound as it prompted speculation the Monetary Policy Committee will be reluctant to make a much anticipated interest rate next month while pricing pressures are so high.

'Today's data does suggest the MPC (A050540.KQ - news) will unlikely take comfort in such results ... the Committee will need to see more evidence of slowing activity in order to continue cutting interest rates,' said Benedikt Germanier, currency strategist at UBS (Virt-X: UBSN.VX - news) .

Meanwhile, the trade data was better than expected, with the deficit narrowing to 7.4 billion pounds in March from 7.6 billion in February.

The data comes ahead of key consumer price inflation figures on Tuesday, all of which will have fed into the Bank of England's Inflation Report, due on Wednesday. Analysts expect the report to signal that interest rates will be cut only gradually because of price pressures.

Meanwhile the dollar undid most of its earlier gains against the euro following some hawkish comments from European officials. European Central Bank governing council member Jose Manuel Gonzalez-Paramo (Stuttgart: 896541 - news) said that price stability remains the central bank's key priority and that there are only isolated areas of liquidity trouble in markets.

Ashraf Laidi, currency strategist at CMC Markets, said the dollar is unlikely to make a sustained climb higher against the euro until euro zone data starts coming in markedly weaker, forcing the ECB to consider rate cuts.

'We do not anticipate stronger than expected US data alone can trigger any prolonged euro selling due to the continued mixed signals emitted from the broader U.S. reports and the unambiguously hawkish ECB stance confirmed at last week's press conference,' he said.

ECB president Jean-Claude Trichet is due to speak in Milan later this afternoon and analysts will be watching closely for any hints he is moving to a less hawkish stance.

London 1313 GMT London 0840 GMT

Dollar

yen 103.77 up from 103.64

Swiss franc 1.0499 up from 1.0489

Euro

Dollar 1.5448 up from 1.5403

yen 160.34 up from 159.64

Swiss franc 1.6219 up from 1.6156

pound 0.7888 down from 0.7905

Pound

dollar 1.9581 up from 1.9486

yen 203.22 up from 201.96