Daily Insight

The British Pound came under intense pressure yesterday amid the untimely death of David Walton, who was a member of the Bank of England's monetary policy committee and the sole voice for a rise in UK interest rates over the past two months. As a result of the news, the Pound dropped significantly against the majors, managing to record a new low against the Dollar by dropping under 1.8300 for the first time in nearly two months. The negative sentiment surrounding the Pound continued throughout the course of the day, particularly against the Dollar, which managed to shrug off poor jobless claims data and has been boosted further on speculation it's yield advantage will keep luring investors to U.S denominated assets. There was also some significant data released in the UK yesterday as the CBI Industrial Trends survey came out virtually in line with expectations as the recent pick-up in manufacturing continues to bolster UK GDP in the second quarter.

There has been a sparse supply of significant data released in the euro-zone this week and the euro continued to remain firm against Sterling yesterday despite some poor Italian consumer confidence data, which provided further evidence that near record oil prices are having a damaging effect on consumer sentiment. In addition, euro-zone industrial orders came out as expected, showing a 2.0% gain in new orders for the month of April and as a result, the Euro strengthened significantly against Sterling to close under 1.4550 last night.

The U.S Dollar staged a significant rally against the majors yesterday, firming by 0.6% against the Euro and 0.8% against Sterling despite the apparent cooling of the labour market with the weekly jobless claims rising to 308,000 in the week ending the 17th June. In addition, an index of U.S leading economic indicators declined in May by the most in nine months, dropping 0.6%, which indicates that higher interest rates may curb economic expansion. Nevertheless, the positive momentum surrounding the dollar can be attributed to a variety of factors including the prospect of further monetary tightening at the end of this month with many investors altering their forecast that U.S interest rates will reach 6% by the end of 2006. The Federal Reserve would ideally like to pause at 5% and it has even been argued that the Fed need a weaker dollar to make U.S exports more attractive and thusly narrow the ever widening trade deficit. However, the economic data released has pointed to rising core inflation and continued growth in the second quarter and therefore the Fed will need to continue raising interest rates in order to keep inflation under control. There is some significant data released in the States this afternoon with U.S Durable goods orders expected to increase by 1.0% in May.

Data Released 23rd May

U.S 13:30 Durable Goods Order (May)

written by Adam solomon