U.K. Inflation Rises to 14-Month High, German Investor Confidence Tumbles for 5th Mon

Inflation in the U.K. accelerated at the fastest pace in 14 months, while the rise in price growth led Governor Mervyn King to write a public letter explaining the recent rise in consumer prices.

[B]Fundamental Headlines[/B]

[I]• U.K. Inflation Jumps Sharply – Wall Street Journal
• German Economic Expectations Deteriorate – Wall Street Journal
• Junkers Warns Greece to Step up Efforts - Financial Times
• Europe Finance Ministers Will Force Greece to Make Deeper Cuts in Deficit – Bloomberg
• Spain Plans to Sell 15-Year Bonds as Greek Crisis Roils Markets Germany- Bloomberg[/I]

[B]GBP/USD[/B] – Inflation in the U.K. accelerated at the fastest pace in 14 months, while the rise in price growth led Governor Mervyn King to write a public letter explaining the recent rise in consumer prices. Price growth rose at an annualized 3.5% after climbing 2.9% the previous month, while the core CPI increased to 3.1% from 2.8% in December, the National Statistics in London said. Inflation gained momentum as prices of alcohol, tobacco, recreation, and bills at restaurants and hotels advanced amid Darling’s reversal of 2.5 percentage-point cut in value-added tax last month. Meanwhile, in Mr. King’s public letter, he stated that inflation at 3.5% is a “temporary deviation,” while adding that the underlying pressures of consumers prices are indeed “to the downside.” Looking ahead, U.K. jobless claims highlights the economic calendar tomorrow, with economists forecasting a drop of 10.0K, and the central bank is widely expected to keep borrowing costs unchanged, with inflation likely to fall back towards the 2% target during the second half of the year.

[B]EUR/USD[/B] – Investor confidence in Germany weakened for the fifth consecutive month in February, with the ZEW economic sentiment slipping to 45.1in February from 47.2 the month prior. Meanwhile, the ZEW survey for the Euro-Zone weakened to 40.2 during the same month from 46.4 the previous month, and the single-currency may continue to lose ground against its major counterparts as concerns regarding “PIGS” (Portegul, Ireland, Greece, and Spain) persists. Going forward, the European Central Bank is widely expected to keep the benchmark interest rate unchanged at the next rate decision meeting on March 4th according to the Credit Suisse overnight Interest rates swaps.

[I][B]Written by Michael Wright, Daily Fx Research
Comments? Questions? email me at <[email protected]>[/B][/I]