After testing the psychologically significant 2.0000 level for most of the trading week, the British pound traded above the mark for the majority of today?s session (the last trading day of the month, the quarter and the half year).
Terrorists planted two car bombs outside a crowed hotspot in London?s trendy West End. Planning on killing hundreds of partygoers, the bomb was defused by London officials before any harm was done and the hunt is on for the culprits.
- [I]“British police defuse bomb in London”[/I]
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[I]-Source: Financial Times[/I]
The BoE will be holding their MPC meeting next week and after Governor King?s hawkish tone since the last meeting the market will be looking for a hike in the benchmark rate of 25bp to 5.75percent. If the central bank tightens, all eyes will be fixed on the statement released a after the announcement to gauge King?s forward assessment of U.K. interest rates.
- [I]“Sterling near 5-mth high, BoE hike awaited next week”
[I]-Source: Reuters UK[/I]
The U.K. economy expanded faster then projected in the first quarter. The International Monetary Fund predicts the British economy to grow 2.9 percent this year, up from 2.7 percent in 2006.
- [I]“U.K. Economy Grew Faster Than Expected Last Quarter”[/I]
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[I][B]UK Market Activity:[/B][/I]
[U][I]Currency Markets:[/I][/U] [B]GBP/USD[/B]
After testing the psychologically significant 2.0000 level for most of the trading week, the British pound traded above the mark for the majority of today?s session (the last trading day of the month, the quarter and the half year). Supported by a rise in consumer and mortgage lending, the cable was trading at 2.0081 (it?s highest since May 1st) in mid-day New York action. Also underpinning the sterling?s steep accent was BoE Governor Mervym King?s hawkish comments to U.K. lawmakers expressing that he still sees inflation risk is to the “upside”. Fundamentals are most certainly the underlying support for the cable. Market participants are pricing in a rate hike at the BoE?s July MPC session and the notion of a six-percent benchmark has been circling the wires buoying the pound off speculation of wider interest-rate differentials.
[U][I]Equity Markets:[/I][/U] [B]FTSE 100[/B]
Top London equities advanced again today lead by Northern Rock (NRK.L) as the FTSE 100 Index closed up 0.56 percent to 6607.90. Positive 6.22 percent for the year, the benchmark index gained for a forth straight quarter. Northern Rock which closed up 4.7 percent to 868 pence was added to the “conviction buy list” by Goldman Sachs analyst James Chappell in London who upgraded the financial firm from “neutral” to “buy”. Also taking share in the mid-afternoon rally were the major oil firms who rose amidst an easing crude supply picture in the United States. Royal Dutch Shell (RDsa.L) and BP Plc (BP.L), Europe?s first and second largest oil corporations climbed 1.5 and 0.7 percent respectively, ringing the bell at 2034 and 603 pence.
[I][U]Fixed-Income Markets:[/U][/I] [B]10-year Long Gilt[/B]
Early in U.K. debt trading, officials reportedly defused a suspected bomb in central London. The terrorist threat prompted a bout of risk aversion as investors fled tp long government instruments as a safe haven asset. Despite the news, gilt yields finished 3bp higher as traders brushed off the scare and pushed long maturity yields to 5.454 percent. The yield on the 10-year note has made advances in each of the last four months, appreciating 18bp in June. Fixed-income strategists contend that lingering subprime woes in the U.S. might possibly spill into the global economy spurring resurgence in “flight to quality” buying, pushing yields back down.