Daily Insight

There was some significant data released in the UK yesterday with inflation reaching a seven-month high in May as Consumer Prices gained 2.2% year-on-year, climbing 0.5% from April. The Pound received a relative boost on the release on the news as speculation intensified that the Bank of England would need to join the global round of interest rate rises for the first time in over ten months. Global inflation, principally due to a sharp rise in energy costs, has already forced the hand at the ECB and the Federal Reserve into lifting their benchmark rates but it seems the BoE have been waiting for a obvious recovery in consumer spending before a tightening of monetary policy can resume. The Pound may come under some pressure today with UK unemployment set to increase last month and Jobless Claims is forecasted to reach the highest level in four years as companies shed workers in order to stem to the impact of surging energy costs and slower economic growth. In addition, UK Average Earnings are expected to show modest signs of growth in the 3 months to April, rising to 4.6%.

The Euro remained relatively unchanged yesterday despite poor economic data coming out of Germany with the ZEW survey for investor sentiment slipping dramatically in June to 37.8 from 45.0 in May primarily due to higher energy costs, rising Euro-zone interest rates and the rapidly declining equity markets in the region. Elsewhere, the German consumer price index showed that prices had slightly declined in May, dropping to 1.9%, which was largely in line with expectations.

Among the emerging market currencies there was a sustained period of volatility yesterday and once again the U.S Dollar proved to be the relative safe haven for investors, recording it's seventh day winning streak against the Euro and closing just under 1.8400 against Sterling. The Dollar also rallied on news that U.S Producer Prices increased by more than expected in May, compounding fears over higher inflation, which has prompted no fewer than six Federal Reserve officials to publicly announce their concern in the past week. That has led to renewed calls for the Fed to lift U.S interest rates for a 17th consecutive month at the end of June and we can expect further market movement today with U.S Consumer Prices widely expected to increase by 0.4% in May, largely due to a significant rise in petrol costs and a slow-down in consumer spending.

Data Released 14th June

UK 09:30 Unemployment (May)
UK 09:30 Average Earnings (3 months to April)

U.S 13:30 Consumer Price Index (May)
- Ex Food & Energy
U.S 13:30 Real Earnings (May)

U.S 19:00 Fed Beige Book

written by Adam Solomon