Daily Forex Analysis by Finexo.com 24/03/2010

Past Events

• USD Existing Home Sales, out at 5.02M versus expected 5.01M, prior 5.05M
• GBP Consumer Price Index, out at 3.0% versus expected 3.1%, prior 3.5%
• GBP Confederation of British Industry Realized Sales, out at 13 versus expected 18, prior 23

Upcoming Events

• GBP Annual Budget Release (1230 GMT)
• USD Core Durable Goods Orders m/m (1230 GMT)
• USD New Home Sales (1400 GMT)
• EUR German Ifo Business Climate (0900 GMT)

Market Commentary

In the US figures for sales of existing homes fell in February for the third month indicating that the high unemployment level is hindering demand in the housing sector. Sales dropped 0.6% to a 5.02 million annual rate, the lowest level in eight months. The expansion and extension of a federal tax credit that helped to stabilize the housing market in 2009 hasn’t taken effect so far this year due to continuing high unemployment levels.

Existing home sales were forecast to fall to a 5 million annual rate from a 5.05 million rate in January. Data on existing home sales, which accounts for more than 90% of the market, is compiled from contract closings and may reflect purchases agreed weeks or even months earlier. This is why many economists consider new home sales figures, recorded when a contract is signed a more accurate and timely reflection of the market.

Data on new home sales is due to be published later today. The Commerce Department is expected to report that the figure rose last month after slumping in January to the lowest level since records began in 1963.

While borrowing costs are low and prices are down, sustained jobs gains are the missing ingredient in promoting a rebound in the housing market. The unemployment rate which reached a 26 year high of 10.15% in October is projected to end the year at 9.5%.

Also out in the US today are reports for core durable goods orders. The figure is expected to climb for the third month in a row adding to evidence of a recovery in the manufacturing sector. The projected rise in durable goods orders would follow a 2.6% jump in January that was the biggest since July 2009.

The US Dollar continued to gain on both the Pound and the Euro in yesterday’s trading. The USD rose 0.58% against the Pound to close at GBP 1.5020. It appreciated 0.71% against the Euro which closed at EUR 1.3468.

In Britain yesterday figures revealed that the UK’s inflation rate dropped more than forecast in February. Consumer prices rose 3% from a year earlier, after increasing 3.5% in January according to the Office for National Statistics. On the month, prices rose by 0.4%.

The Pound rose against the Euro yesterday, gaining 0.14% to close trading at GBP 0.8964.

The inflation rate fell because of large downward movements on prices from items like toys, books and gas bills. UK gas prices have been cut three times in the last 12 months with the last cut seeing prices fall by 7%, saving the average household 55 Pounds or $83 per year.

UK retail sales slowed more than expected in February though retailers are expecting a small recovery next month according to the Confederation of British Industry’s report yesterday. Monthly distributive sales fell to 13 in March from 23 in February. Economists had predicted a reading of 15.

“Despite not matching the strength seen in February, it is encouraging that high street sales have continued to grow this month,” said Andy Clarke, chairman of the survey panel. However, Clarke warned that trading was unlikely to be easy over the coming months.”The outlook for Easter may still be positive, but with a weak economy and pay freezes for many, consumers are likely to remain cautious for some time,” he said.

All eyes will be on the UK later today as Prime Minister Gordon Brown’s government unveils the annual budget. Chancellor Alistair Darling has reiterated there will be “no giveaways” ahead of the general election. The Pound has had its worst annual start in the currency market in 13 years, dropping 7% against the US Dollar since January. The currency has been weakened by uncertainty regarding the outcome of the general election which Prime Minister Gordon Brown must call by June. The government was forced to borrow heavily during the recession resulting in one of the highest deficits in Europe.

Mr. Darling has said that while there had been signs recently that the economy was improving, with unemployment falling and government borrowing lower than forecast there was still a lot of uncertainty. The budget is expected to focus on encouraging private sector investment and securing long term economic growth. The government plans to halve the budget deficit – which at 12.6% is one of the highest in Europe- over the next four years.

He said “the mood of the times is not for giveaways. People are not daft, they know perfectly well we need to get borrowing down and secure (economic) recovery”.

In the Euro Zone the weaker Euro is predicted to have boosted German exports ahead of the German Ifo Business Climate survey today. The index is expected to have increased to 95.8 from 95.2 in February. Warmer weather is also expected to have led to a resumption in consumer spending and construction.

Greece’s fiscal crisis has contributed to the Euro’s 10% drop against the US Dollar in the last four months making German exports more competitive outside the Euro Zone. Bundesbank President Axel Weber has said that the EU’s largest economy may contract in the first quarter before rebounding in the second.

The EU summit to be held in Brussels tomorrow and Friday is expected to center around finding a resolution to the Greek debt crisis. Yesterday a German Finance Ministry official told reporters in Berlin that Germany and France agreed to back an IMF role in any aid for Greece. The shift, made before start of the summit, came a week after Euro-area finance ministers had agreed to a European framework for a bailout.

Written by Finexo.com