Daily Insight

Following on from last week, the Dollar was given an unexpected boost on Friday as the U.S Trade Balance showed that the deficit in goods and services widened to £63.4 Billion in April primarily due to an increase in the cost of imported oil and a sharp rise in purchases of industrial machinery. However, the market was expecting the trade gap to widen more excessively to $65 Billion and as a result the Dollar rallied to trade back under 1.8400 against Sterling. Nevertheless, we bounced off the low from the previous day at 1.8360 and as we predicted in the afternoon update the market traded back towards 1.8450 at the close. In recent weeks, there has been a lot of volatility in the market as inflationary data both in Europe and the States draws more attention and we have a plethora of significant data released this week with the U.S consumer price index on Wednesday and forecasters are anticipating that inflation accelerated by as much as 0.3% in May. In addition, we should get a further indication of the Fed's intention to raise U.S interest rates this month with retail sales and PPI both released on Tuesday.

Following the Bank of England's announcement last week that UK interest rates will remain at 4.50% for a tenth month in succession, there is some key inflationary data released this morning with the Producer Price Index set to increase in May with output prices rising to 2.5% from 2.3% in April primarily driven by higher energy costs. The Pound may strengthen on the release of UK retail sales on Thursday, which is widely expected to show positive signs of growth following World Cup fever gripping the nation. Annual growth is predicted to rise significantly to 3.6% in May but higher petrol prices and rising unemployment are having a negative impact on consumer spending. In addition, there is some important data released tomorrow with the UK consumer price index expected to show that inflation has risen to 2.2% in the last month, which is slightly ahead of the government's target, although the Core measure has dropped to 1.2%.

The Euro was struggling towards the latter part of the week following the ECB's decision to lift interest rates by a quarter-point last Thursday and in the accompanying press conference, Jean-Claude Trichet reiterated that euro-zone interest rates are at an appropriate level at 2.75% and therefore provided an insight into the ECB's intention to adopt of more measured approach to monetary tightening. There is also some inflationary data released in the euro-zone on Thursday with the Core measure for inflation likely to mirror the initial estimate last month following an increase to 1.6% in April.

Data Released 12th June

UK 09:30 Producer Price Index Output (May)
- Input

U.S 21:00 Treasury Budget (May)

written by Adam Solomon