Daily Insight

The Pound suffered further losses against the Dollar yesterday as UK jobless claims rose by slightly more than expected in June and reached the highest level in four years last month, which dampens inflationary pressures and increases speculation that the Bank of England will continue to hold interest rates at 4.50%. The number of people out of work and claiming benefits increased by 5,900 to 956,600 in May, which is the highest level since January 2002 although the unemployment rate remained unchanged at 3%. In addition, UK average earnings also remained fairly muted in June as employers attempt to soften the blow of higher energy prices by keeping a restraint on wage growth. The apparent lack of improvement in the labour market is also contributing to the assumption that the BoE will not tighten interest rates over the coming months and as a result, the Pound weakened against the Dollar to trade back under 1.8400.

For a second day in succession, the Euro continued to hold steady around 1.4450 against the Pound at the close of trading last night but we did see some movement over the course of the day. There was some significant inflationary data released in the euro-zone in the morning as first quarter GDP came out largely in line with expectations at 0.6% growth, which reiterated the previous estimates taken although the annual rate in the first quarter was slightly higher than anticipated at 2.0%. With the August 3rd interest rate announcement fast approaching, it now seems inevitable that the ECB will hike interest rates a further quarter-point to take them upto 3%. There is a sparse supply of economic data released in the euro-zone for the remainder of this week but the ECB monthly bulletin tomorrow morning may provide an insight into the Central Bank's stance on monetary policy over the next month.

The Dollar received a timely boost yesterday as the U.S Trade Deficit widened by much less than anticipated at 0.8% from April with the gap in goods and services increasing to $63.8 Billion, which was well under expectations as U.S exports rose to the highest level in four years and consumer demand for foreign products unexpectedly dropped. The Dollar's 4% decline in the last year is making American-made products more attractive overseas as faster economic growth in Europe and Asia spurs on U.S exports while a slowdown in U.S consumer spending, due to higher interest rates and rising petrol costs, is curbing demand for imported goods. As economic growth begins to slow in the second half of the year, U.S demand for imported goods is expected to shrink, which will also allow the current account deficit to narrow from 6.4% of Gross Domestic Product. However, the Dollar has come under pressure overnight as Crude Oil rose to a record high to over $75 a barrel as militants in Nigeria attacked pipelines, halting the production of 120,000 barrels of oil a day.

Date Released 13th July

UK 11:00 BCC Quarterly Economic Survey (Q2)

EU 09:00 ECB Monthly Bulletin Published

U.S 13:00 Initial Jobless Claims (w/e 8th July)
U.S 19:00 Federal Budget (June)

written by Adam Solomon