Daily Insight

In recent weeks, the Euro has made significant gains against the Dollar as speculation has intensified that the ECB will lift interest rates from the current 2.50% as the euro-zone economy begins to gain momentum. However, the data released yesterday has cast some doubts over this as the ZEW survey, which focuses on economic sentiment in Germany, showed that investor's confidence had dropped sharply this month to 50.0 from 62.7 in April due in part to a sharp rise in global energy prices. The Euro may come under further pressure today with euro-zone Industrial Production data expected to show a 0.2% drop in April from 3.2% in March and the Core measure for inflation in the euro region is widely anticipated to remain unchanged at 1.4%.

There was some significant data released in the UK yesterday as the Consumer Price Index showed that inflation accelerated in April, coming out in line with the government's 2% growth target following a drop to 1.8% in March. Consumer Prices rose by 2% year-on-year in May, which was largely in line with expectations, as prices gained 0.6% from March, the biggest increase since May 2001. The Minutes of the Bank of England's May meeting are released this morning with Stephen Nickell, the only MPC member to vote for a cut in interest rates, expected to continue his recommendation despite forecasts for higher inflation in the UK. The focal point of today in terms of data released will be UK unemployment and average earnings at 09:30 this morning with forecasters expecting a rise of 3% in April while headline earnings growth may give Sterling a boost if the figure comes out in excess of 4.2% in the first three months to March.

With regards the Dollar, there was a real mixed bag of data in the States yesterday as the Producer Price Index showed that U.S Wholesale Prices jumped by 0.9% in April but excluding food and fuel, Core prices only rose by 0.1% from March, which is under market expectations and supported the Fed's view that inflation is under control and therefore provides justification in keeping interest rates on hold. In addition, the Dollar was hampered further when U.S housing data showed that builders had begun work on the fewest new homes since November 2004, providing yet another indication of a cooling housing market in the States as increasingly higher interest rates have dampened demand. We have been anticipating a period of consolidation for the Dollar in recent days but this morning we have resumed the upward movement towards the 1.9000 level and we can expect further market movement throughtout the course of today. There is some significant data released in the States with the Consumer Price Index expected to jump by the most in three months in April but excluding record high petrol costs, Core Prices may only rise by 0.2%, which is under market expectations and 0.1% down from March.

Data Released 17th May

UK 09:30 BoE Minutes of May Meeting

UK 09:30 Unemployment (April)

UK 09:30 Average Earnings (3 months to March)

EU 10:00 Consumer Price Index (April)

EU 10:00 Industrial Production (March)

U.S 13:30 Consumer Price Index (April)

written by Adam Solomon