Daily Insight

The Pound made significant gains against the Dollar but particularly the Euro yesterday despite a sparse supply of important data released in the UK or the rest of Europe. Cable was relatively unchanged before the BCC quarter economic survey for the second quarter even-though the price of crude oil rocketed to $75 a barrel overnight as turmoil in Nigeria threatened the production of 120,000 barrels a day. Elsewhere, the Bank of England have appointed Andrew Sentence to their Monetary Policy Committee to replace the recently departed David Walton, who tragically died last month following a short illness. His arrival at the MPC did little to dampen demand for Sterling despite Mr Sentence twice voting for cut in UK interest rates in March and April this year. The Pound has tested 1.4500 against the Euro on two occasions in the past two days and yesterday we managed to close just above that level. Sterling firmed by 0.4% against the Dollar on the day and 0.5% versus the Euro with the positive sentiment surrounding the Pound attributed to a large trade off of euros into sterling that passed through the market.

The Euro came under increased pressure yesterday despite the ECB indicating that a rise in Euro-zone interest rates will be necessary in August as higher inflation continues to threaten economic growth. The Euro was largely unaffected on the release of the ECB monthly bulletin but inflationary data in France and Germany has raised speculation that the Central bank's cautious approach towards monetary tightening may be justified. The Consumer Price Index for both countries posted a modest increase in June and was slightly below expectations with harmonized CPI in Germany showing a 0.1% month-on-month increase with the annual growth rate at 2.0%, which is in line with the ECB's target for Euro-zone inflation.

The Dollar has staged a decent rally over the past few days but a retracement was under way yesterday in light of the oil fiasco in Nigeria. In addition, the price of crude oil rose to another record high yesterday at $78 a barrel as escalating violence in the middle east between Israel and Lebanon threatens global supplies. The single currency also came under pressure from initial jobless claims, which showed that the number of people claiming benefits actually rose to 332,000 in the last week, which was way ahead of expectations and supports the monthly job report that the seemingly buoyant U.S labour market is beginning to subside. There is a host of significant data released in the States this afternoon, most notably the Retail Sales report for June with both headline and core sales widely expected to rise by 0.4% from May. In addition, the preliminary Michigan sentiment survey will also provide an insight into consumer sentiment while elsewhere U.S import prices are expected to show modest gains in June of 0.3% while export costs are forecast to show a 0.4% increase from the previous month.

In other news, the Bank of Japan finally raised interest rates from zero for the first time in six years and projected a sustained period of growth in the coming months, ending a decade of deflation. However, policy makers elected to lift interest rates by just 25 basis points with the market anticipating a slightly more aggressive move and as a result, the Yen has not made the positive gains that we would of anticipated.

Data Released 14th July

U.S 13:30 Retail Sales (June)
- Ex Autos

U.S 13:30 Import Prices
- Export Prices

U.S 14:45 Michigan Sentiment (June)
U.S 15:00 Business Inventories (May)

written by Adam Solomon