The Bank of England’s latest Inflation Report was one of the gloomiest documents it has produced in the 10 years since it became independent. We also think it is realistic in seeing the most likely outcome that growth next year slows sharply in the UK and that inflation, while moving a bit higher near term, will be comfortably close to the 2% target level beyond that small near-term hump. This Bank forecast is conditional on an assumption that rates follow a path implied by the short end of the sterling yield curve, which means two (25-basis-point) rate cuts — one imminently and a second a bit later next year.
[B]Weekly Bank Research Center 11-19-07[/B]
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[B][B][B][B][B] UK Rate Cut Likely in the Near Term [/B][/B][/B][/B][/B]
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The Bank of England’s latest Inflation Report was one of the gloomiest documents it has produced in the 10 years since it became independent. We also think it is realistic in seeing the most likely outcome that growth next year slows sharply in the UK and that inflation, while moving a bit higher near term, will be comfortably close to the 2% target level beyond that small near-term hump. This Bank forecast is conditional on an assumption that rates follow a path implied by the short end of the sterling yield curve, which means two (25-basis-point) rate cuts — one imminently and a second a bit later next year.
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[B]When does the Euro Become a Problem? [/B]
[/B] [/B] [/B] <em> Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank
Since the financial turmoil kicked off in July, EUR has climbed around 8% against USD. We anticipate further gains and reckon that the EUR/USD could break through 1.50 in the next six months. So is the strong EUR becoming a serious problem for European exports and the European economy? In our view, it is too early to write-off European exports. Although the EUR/USD has been hitting record highs, the trade-weighted EUR has been strengthening much more slowly and it is not yet at especially high levels (see chart). Ultimately, it is currently more appropriate to talk of a weak USD than a strong EUR.
<strong style=""> [B][B][B] [B] US Inflation is Heating Up [/B]
[/B] [/B] [/B] [I][I]John E. Silvia, Ph.D. Chief Economist, Wachovia[/I] [/I]
Although October’s inflation reports were close to expectations, the year-to-year change in both the Producer and Consumer Price Index increased significantly. The culprit is soaring oil prices and the delayed, but significant, hike in gasoline prices. On a year-to-year basis, the overall PPI is now up 6.1 percent, while the CPI is up 3.5 percent. The run-up in the headline inflation will almost certainly get worse before it gets better. In October, gasoline prices were relatively flat in the real world. However, gasoline prices usually fall in October, thus on a seasonally adjusted basis, prices rose more than one percent. Gains of this type are quirks and typically do not produce much follow through to prices elsewhere.
<strong style=""> [B][B][B] [B] Loonie Pulls Back from Last Week’s Soaring Heights [/B]
[/B] [/B] [/B] [I] Steve Chan, Economist, TD Bank Financial Group [/I]
What a difference a week makes. Up until now, the rise of the Canadian dollar has been much like the Energizer bunny that just kept going and going, much to the chagrin of forecasters who had been at a loss to explain its seemingly limitless potential. Finally though, after rising from $1.04 U.S. to an almost unfathomable level of $1.10 U.S. in only eight days, some of the shine finally began to rub off the loonie this week. By the close on Thursday, the dollar was back down to $1.03, off 6.3% from the peak hit only eight days ago.
<strong style=""> [B][B][B] [B] Other Pre-screened Independent Contributors[/B]
[/B] [/B] [/B] [I] J-Chart [/I]
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