Daily Insight

The Pound made some significant gains against the Euro yesterday, rising 0.5% to close at 1.4650 last night due to a string of economic factors. Firstly, UK Factory gate inflation increased to 0.3% in May, pushing the annual rate upto 3% thanks largely to the rising price of raw materials and higher energy costs. Sterling also rose by 0.2% versus the Dollar on the release of the May Producer Price Index, which showed that petrol costs have helped push price inflation of goods leaving UK factories to it's highest level in eight months. In addition, the DCLG housing market survey showed that UK House Prices rose considerably in April taking the annual rate upto 5.1% with a 3.3% month-on-month increase from March despite the more recent surveys from the Halifax and Nationwide, which have suggested that prices had declined. There is some hugely significant inflationary data released in the UK this morning with the Consumer Price Index set to show that inflation in the UK has risen to a six month high in May, which fuels speculation that the Bank of England will need to lift interest rates. Consumer Prices may have risen by 2.1% from this time last year but the BoE may continue to adopt a more cautious approach and draw comfort from core inflation's moderation to 1.2%.

The Euro has been steadily slipping against the majors since the ECB announcement last Thursday and has dropped 0.3% against the Dollar over the last 24hrs following the weekend's meeting of G8 Finance Ministers, which passed without any call for a weaker dollar and a Euro sell-off was also prompted by comments from the French finance minister, Thierry Breton, who reiterated his concerns over a strong Euro, saying the recent stabilisation was "welcome". We can expect the Euro to come under further pressure this morning with German investor confidence expected to decline for a fifth month in June amid concerns over higher euro-zone interest rates and rising inflation. The ZEW centre for European Economic Research will release it's latest index for confidence in Europe's largest economy and we expect economic sentiment to fall towards 47.0 from 50.0 in May. In addition, the German Consumer Price Index is released this morning and forecasters are anticipating that inflation declined to 1.9% in May but a 30% surge in the price of oil over the past year is putting increased pressure on the euro-zone economies.

The U.S Dollar continued it's longest winning run since November yesterday amid further calls for the Federal Reserve to bring inflation under control and therefore raise U.S borrowing costs for a 17th month in succession. Another Fed policy maker reiterated comments from the chairman Ben Bernanke last week that higher inflation is unwelcome and the Fed would make sure it was "not sustained". Therefore, the market reacted to the news as the chances of a U.S rate increase later this month rose to 86% and Dollar sentiment is looking increasingly positive while we remain under 1.8500 against Sterling. There is some important data released this afternoon in the States with U.S Retail Sales widely expected to show the smallest increase in three months in May, providing further evidence of a slow down in the economy and the damaging effect that higher interests are having on consumer spending.

Data Released 13th June

UK 09:30 Consumer Price Index (May)

GER 10:00 ZEW Economic Sentiment Index (June)

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

U.S 13:30 Retail Sales (May)

U.S 13:30 Business Inventories (April)

written by Adam Solomon