RTTNews - Wednesday during early deals, the pound jumped to fresh multi-month highs against its major counterparts as U.K.'s consumer confidence increased in May to the highest level in six months as people became more confident about the prospects for the economy.
The Nationwide Building Society, a leading mortgage lender, said its measure of consumer confidence rose to 53 in May from 51 in April. May's reading is the highest since November 2008. The pickup in confidence was driven by a more upbeat assessment of the prospects for the economy.
As we continue to see contrasting news about the state of the economy, it is likely that confidence will remain fragile, said Martin Gahbauer, Nationwide's chief economist.
While some reports suggest tentative signs of a slowing in the pace of economic decline, it is important to remember that a number of sectors are continuing to contract and any recovery is likely to be sluggish.
Nationwide said 28% of those polled believed the economy will be better in six months' time, the highest proportion since the survey began in May 2004. Exactly the same proportion expected the economy to be in worse shape in six months' time, down from 32% in April, while 42% expected it to be in the same condition.
The pickup in confidence recorded by Nationwide may also reflect signs of stabilization in the housing market. The lender last week reported that house prices rose in May, the second gain in three months.
Britain's economy shrank by 1.9 percent in the first three months of this year, the steepest decline in 30 years, and the contraction for 2009 as a whole is likely to be the worst in Britain's post-World War Two history.
But recent surveys have suggested the economy may have passed through the worst of the downturn and policymakers are hoping that record low interest rates and efforts to pump cash into the economy will help things along.
A separate report from the British Retail Consortium showed today that the rate of shop price inflation in Great Britain fell to a 4-month low of 1.3% in May, led by a sharp slowdown in fresh food prices.
The Bank of England is scheduled to meet tomorrow to decide on interest rates. Analysts expect the BoE to leave rates unchanged at 0.5%, as evidence emerges that the recession is easing.
After a brief slide, the pound gained against the dollar during early deals on Wednesday. The pair moved from 1.6549 to 1.6660 by about 1:50 am ET. This set the highest point for the pound since October 30, 2008. On the upside, 1.70 is seen as the next target level for the U.K. currency. The pound-dollar pair was worth 1.6587 at Tuesday's close.
After hitting a 23 1/2 -year low of 1.3507 against the dollar on January 23, the pound has been in an upward channel. Thus far, the pound-dollar pair has advanced 19%.
In early deals on Wednesday, the pound jumped to a 6-month high of 0.8591 against the euro. This may be compared to yesterday's close of 0.8629. If the U.K. currency climbs further, it may likely target the 0.850 level.
The pound tumbled 25% against the euro in 2008 and fell to a record low of 0.9806 on December 30. But the pound is showing strength since the beginning of this year and it has appreciated 12% thus far.
The pound, which closed yesterday's trading at 158.77 against the yen strengthened to a 7-month high of 160.00 in early deals on Wednesday. The next upside target level for the pound-yen pair is seen at 165.1.
Bank of Japan's policy board member Hidetoshi Kamezaki told business leaders in Shizuoka today that the central bank should implement policies proactively depending on changes in economic conditions.
Kamezaki sees recovery in the near term due to the effect of stimulus measures and easing pace of production declines. Kamezaki added that the Japanese economy could start falling again if recoveries in overseas are weak and fails to support exports.
The pound has appreciated 26% against the yen since reaching a record low of 118.88 on January 23.
During early trading on Wednesday, the pound advanced to near a 5-month high of 1.7692 against the Swiss franc. If the pound-franc pair edges up further, it may likely target the 1.80 level. At Tuesday's close, the pair was quoted at 1.7614.
The pound-franc pair jumped above the 1.85 level in January 2009 and reached a 1-1/2 -month high of 1.8512 on January 13. Although the U.K. currency declined thereafter, it rebounded on January 21 and extended its uptrend in the subsequent months. Since then, the pair has appreciated more than 11%.
Traders are now likely to focus on the Euro-zone first quarter GDP and the PPI report for April, which are due at 5:00 am ET. The Eurostat is expected to confirm 2.5% sequential fall in Euro zone GDP and an annual 4.6% decline in the first quarter.
Meanwhile, euro area producer prices are forecast to drop 4.5% annually in April compared to a 3.1% fall in March. Month-on-month, decline in producer prices are seen at 0.8%.
The services PMI reports from major European economies are also expected today.
From U.S., the ADP National Employment report, which sheds light on non-farm private employment, is scheduled to be released at 8:15 am ET. The report is usually released two days prior to the Labor Department's employment report.
The Commerce Department is due to release its report on factory goods orders for April at 10 am ET. Orders for manufactured goods are likely to have increased 0.3% in the month.
At the same time, the ISM is scheduled to release the results of its non-manufacturing survey. The non-manufacturing index is likely to show a reading of 45 for May.
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