Daily Insight

The positive sentiment surrounding the Dollar continued yesterday as we surged under 1.8200 versus the Pound for the majority of the session. The conflict in the Middle East is seemingly fuelling the recent rally as investors turn to the Dollar as a relative safe haven amid times of uncertainty and relinquish any "risky" assets. However, it can also be argued that the conflict in the Middle East will increase inflationary pressures in the States and it seems that the market may be factoring in a possible hike in U.S interest rates next month in order to supplement record oil prices. In recent months, there has been some aspects of the U.S economy that has showed some signs of slowing down but it seems that Industrial Production has rebounded in the last month to rise by 0.8%, which was more than anticipated following the moderate decline in May, as factories increased their production of communications equipment.

There is some significant data released in the U.S this afternoon that could potentially fuel speculation that the Federal Reserve will need to continue tightening interest rates in August. The Producer Price Index is widely expected to show that core prices jumped from 1.5% to 1.9% in June. Elsewhere, the TIC's Net Capital Inflows will be watched closely and the consensus forecast is for a dramatic pick-up from the previous month but net inflows could still fall some way short of covering the ever widening U.S trade deficit.

The Euro has come under increased pressure in the past week and the single currency dropped back further against the Dollar yesterday and declined by 0.1% versus the Pound. There was some significant inflation data released in the Euro-zone with the Consumer Price Index holding at 2.6% in June, which was relatively unchanged from the previous month with the year-on-year growth rate at 1.4%. This suggests that the ECB may not need to adjust interest rates quite so aggressively over the coming months, although inflation still remains above the Central Bank's comfort zone. In addition, Industrial Production in the Euro-zone increased by more than anticipated in May with output increasing to 1.6% from 1.4% the previous month. The focal point today in terms of European data released will be the German ZEW survey for economic sentiment and forecasters are expecting a moderate rise in June from 37.8 in May, primarily due to the staging of the World Cup this summer.

There was a sparse supply of economic data in the UK yesterday but the Rightmove House Price survey provided some positive news in relation to the housing market as prices jumped significantly in July despite forecasters predictions that a relative slowdown in the UK housing market was likely, due in part to rising inflation and the prospect of higher interest rates. A change in UK monetary policy remains fairly muted in the Bank of England, particularly since the death of MPC member David Walton last month, but any evidence that UK inflation is accelerating in the data released this morning will raise the possibility of a rise in rates later this year. The Consumer Price Index is widely expected to remain unchanged at 2.2% in June, which is slightly above the government's target.

Data Released 18th July

UK 09:30 Consumer Price Index (June)

EU 10:00 Trade Balance (May)

GER 10:00 ZEW Expectations Balance (July)

U.S 13:30 Producer Price Index (June)
U.S 14:00 TIC's - Net Capital Inflow (May)

written by Adam Solomon