Daily Insight

The Euro has been boosted against Sterling in the past week by some extremely positive data coming out of Germany and yesterday the single currency made further gains against Sterling as the Ifo Business climate index showed that confidence in Germany remains at a high level despite forecasters anticipating a decline in May following increasingly higher energy costs and the surging price of oil. The index, which is based on a survey of 7,000 executives, maintained the 15-year high from April and only dropped off to 105.6 from 105.9 last month with expectations for euro-zone exports to continue improving over the coming months and that's despite comments from the French Finance Minister indicating that the ECB wouldn't want the Euro to appreciate much more because exports would become to expensive for foreign investors.

Sterling weakened significantly against the majors yesterday off the back of some weaker than expected CBI data, which showed that manufacturers were less optimistic with monthly orders dropping to -12 in May despite forecasters anticipating a continued improvement this month from April as average price expectations for the next three months dropped to 0 but there was some positive news for the Pound as UK export orders reached the highest level in ten years. There is some important economic data released this morning with the second estimate for GDP in the first quarter and it is widely anticipated that UK inflation will remain unchanged from the first estimate at 2.2%.

With regards the Dollar, we witnessed some significant market movement yesterday as U.S Durable Goods Orders fell by more than expected for the month of April, dropping by 1.1% from March where orders showed the biggest two month increase since comparable records began in 1992. The sharp increase in fuel costs are seemingly having a visible effect on companies as they attempt to curb corporate spending with Orders for goods made to last falling by 4.8%, the biggest decrease since January. However, the Dollar climbed dramatically against the majors on the release of housing data in the States, which unexpectedly showed that Sales of New Homes increased by 4.9% in April to an annual rate of $1.198 million despite market expectations of a sharp decrease this month as rising U.S interest rates make mortgages less attractive for American consumers.

Nevertheless, there were 565,000 new homes for sale at the end of April, the highest ever recorded, and a seemingly buoyant labour market is sustaining demand for new homes, which flies in the face of higher mortgage rates. The policy makers at the Federal Reserve will be watching the housing market closely and yesterday's data has increased speculation that the Fed may continue it's two year cycle of interest rates rises as the economy continues to show growth. As a result, we have seen some renewed appetite for the Dollar, gaining 0.3% against Sterling to close under 1.8700 last night and there is some significant data released this afternoon in the States with the first quarter GDP deflator, which is widely expected to come in just under the Consumer Price Index last week at 0.2% and Sales of Existing Homes are also expected to decline in April.

Data Released 25th May

UK 08:30 GDP (Q1 Preliminary)

U.S 13:30 Initial Jobless Claims (w/e 20th May)

U.S 13:30 GDP (Q1 Preliminary Deflator)

U.S 15:00 Existing Home Sales (April)

written by Adam Solomon