Daily Insight

The U.S Dollar continued it's three day winning streak yesterday as former Federal Reserve chairman Alan Greenspan made his first public statement since leaving the position earlier this year and testified to the Senate over concerns for oil dependence and economic risk. Following comments from Ben Bernanke and other Fed policy makers seemingly paving the way for another interest rate hike later this month, Greenspan talked about U.S productivity outweighing a rise in global energy costs and higher petrol prices having a damaging effect on the housing market. As a result, investors priced in an 82% chance that the Fed would lift borrowing costs for a 17th consecutive month, taking them upto 5.25%. The Dollar made significant gains against Sterling at the close and overnight we traded through the major support level at 1.8500. There is the some data released in the States this afternoon with the weekly jobless report at 13:30 and wholesale inventories for the month of April is expected to increase by 0.5%. The monthly U.S trade deficit, released tomorrow afternoon, will give us an indication that the Dollar's recent resurgence will continue but at present it is a very good time to be selling Dollars back to Sterling considering we are under 1.8500 for the first time in nearly a month.

Without doubt the most significant event of the day will be the ECB interest rate announcement at 12:45 today and the accompanying press conference shortly after where the chairman, Jean-Claude Trichet, may give us an indication of future monetary policy and the reasons behind the central bank's decision to lift interest rates. It is very much factored into the market that the ECB will lift rates by 25 basis points this month but in recent weeks investors have been deliberating over whether policy makers will increase borrowing costs by as much as half a point in the wake of higher euro-zone inflation and the continued improvement in the service sector and manufacturing industry. However, such an aggressive move was undermined yesterday as the French finance minister, Thierry Breton, expressed his concerns that the single currency would appreciate too quickly and maintained that the Euro was "fully valued" at current levels. The Euro has broken 1.4500 against Sterling in the build-up to the announcement and we can expect the market to remain relatively unchanged if the ECB lift rates by 0.25% and may even show some weakness to the news.

The Bank of England will convene at midday today to announce their latest stance on interest rates and following a glut of reasonably poor UK data in the past two weeks, forecasters are expecting a no change from the current 4.50% which will be the tenth month in succession that policy makers have kept rates the same. However, the recent pick-up in manufacturing output and signs of improving consumer sentiment has increased speculation that the BoE will need to lift interest rates towards the latter part of the year in order to keep inflation around the government's 2% target. There is some significant data released in the UK this morning with industrial production in April expected to show modest signs of growth with forecasters predicting an increase of 0.3% as global demand strengthens.

Data released 8th June

UK 09:30 Manufacturing Output (April)
- Industrial Production

UK 12:00 BoE Interest Rate Announcement

EU 12:45 ECB Interest Rates Announcement and Press Conference at 13:30

U.S 13:30 Initial Jobless Claims (w/e 3rd June)
U.S 15:00 Wholesale Inventories (April)

written by Adam Solomon