The pound had a better day yesterday rising strongly from the depths reached on Tuesday after the publication of the shock GDP figures showing the UK economy had shrunk by 0.5% in the fourth quarter of 2010.
The pound was given some impetus yesterday morning after the release of the minutes of the Bank of England’s Monetary Policy Committee MPC) showed that new MPC member Martin Weale joined fellow MPC member Andrew Sentance in calling for a 0.25% interest rate increase to curb the current high rate of inflation in the UK. This decision was taken without the MPC committee having had the ‘benefit’ of Tuesday’s shock GDP numbers so it will be interesting to see if this 7-2 split in the MPC remains for the February meeting.
The bad economic news coming out of the UK continues with the British Bankers’ Association (BBA) reporting a further fall in the number of loans for house purchase which have dropped to less than 400,000 after coming in “marginally lower” for December. “Mortgage demand was weak throughout the year,” BBA statistics director, David Dooks said.
The euro continues to benefit from a lack of negative news flow. Ireland scraped through the first vote of its Finance Bill and European Central Bank (ECB) President Trichet calling on member countries to extend the European Financial Stability Fund (EFSF) and allow it to buy government bonds. German inflation figures are due out this morning and some analysts are predicting they will show another rise in German inflation. ECB President Trichet said yesterday that the ECB would take whatever steps it needs to in order to control rising prices.
Last night saw the first Federal Reserve rate meeting on 2011. It didn’t promise to be particularly exciting and it wasn’t. The Fed gave its usual downbeat assessment of the US economy justifying the continuance of its bond buying program until the middle of this year. The statement did, however, acknowledge that job market conditions were improving but not at a rate that would justify rowing back on its Quantitative Easing (QE) bond buying program. The dollar fell on the news.
Later today, US weekly jobless claims are expected to come in around 410,000 while durable goods for December are expected to have risen 1.5%, improving from a 1.3% decline in November.
Australia’s Prime Minister Julia Gillard has announced a new tax to help pay for devastating floods that she says will cost A$5.6 billion in the reconstruction of swathes of Queensland and Victoria.
Ms Gillard said the 12 month tax, starting from 1 July, would be levied on those earning A$50,000 or more, and those affected by floods would not pay.
“The Treasury’s preliminary estimates are that GDP growth in this financial year will be about half a percentage point less due to the floods,” Ms Gillard said. “The best preliminary estimate of the direct cost to the federal budget of the summer’s flood disaster is A$5.6bn.”
The new tax will charge an extra 0.5% on those earning A$50,000-A$100,000 and 1% more on those earning more than A$100,000. It is expected to raise about A$1.8bn.
Ms Gillard said that ”in a growing economy, we pay as we go” and said deferring the costs was a “soft option” she was not prepared to take. The Australian dollar fell on the news .
Commentary by Tony Redondo
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