Daily Insight

Following on from last week, the Euro was given a boost on Friday with German Producer Prices rising by 1% month-on-month in April, which was largely in line with expectations, showing the biggest increase in nearly 24-years as global energy costs continue to soar. This week, the German ifo business climate survey is released tomorrow and forecasters are anticipating a slight decline in May from the 15-year high last month as the Euro's recent strength combined with market volatility and higher energy costs are expected to have a negative impact on business confidence. There is some significant data released this morning in the Euro-zone with the monthly trade balance expected to show that the deficit in goods and services has narrowed to €2.7 Billion in March.

In recent weeks, the Pound has made significant gains against the Majors as speculation continues to increase that the Bank of England will need to lift interest rates from the current 4.50% as the rising cost of oil and natural gas threatens to push UK inflation beyond the government's 2% target. In addition, the Minutes of the Bank's last policy meeting showed that the MPC was split 6-2 in favour of keeping interest rates on hold this month with David Walton, the only member to recommend a rise in rates in May. There is some fundamentally important data released this week as the first estimate for GDP growth came in at 0.6% quarter-on-quarter, taking the annual growth rate to 2.2% led by a sharp improvement in UK Manufacturing and the service sector but neither are expected to affect the second estimate released on Thursday.

Towards the end of last week, the Dollar made back some significant gains against the Pound and the Euro as the U.S Consumer Price Index showed that prices had risen by more than expected last month, increasing 0.3% from March, which fuelled speculation that the Federal Reserve will need to continue raising interest rates beyond the current 5% as inflation begins to accelerate. This week, the market will be looking for further indication that the U.S economy is accelerating faster than previously anticipated with the Fed's preferred measure of inflation published on Friday and the Core Personal Consumption deflator is widely expected to mirror the CPI by rising 0.3% last month, taking the year-on-year growth rate up to 2.2%.

Data Released 22nd May

EU 10:00 Trade Balance (Mar)

written by Adam Solomon