Daily Insight

Following on from last week, The Euro and the Dollar came under pressure amid the geopolitical tensions in the Middle East with investor's turning to the Swiss Franc and the Pound as relative safe havens. However, on Friday the Dollar shrugged off poor retail and consumer confidence data to close under 1.8400 against the Pound and we have seen further gains early today as we drop underneath 1.8300. There is a host of significant economic data released this week in the States that will determine whether the Federal Reserve finally hold interest rates in August. During the June FOMC rate announcement, Ben Bernake indicated that the Fed would hold interest rates in August if inflation had showed some signs of slowing down.

On the note, the Producer Price index, released tomorrow, will take on added significance and forecasters are anticipating that prices, excluding food and energy, have risen by 0.2% last month. In addition, the Consumer Price index for June is also released later this week and will provide a good indication whether the Fed will lift rates from the current 5.25%. The consensus forecast is for core prices to jump by upto 0.3%, which will push the year-on-year growth rate to 2.6%. However, it can be argued that the U.S economy is beginning to slowdown into the third quarter as we have seen a sustained dip in the housing market while industrial production and manufacturing output have remained fairly muted. Further evidence of the this should be provided in the figures released this afternoon with industrial production expected to moderate from 4.3% in May to 3.9% last month.

The Euro has declined against the Pound and the Dollar in the past week despite the ECB's intention to lift interest rates further in their next meeting on August 3rd. There is a sparse supply of significant economic data released in the euro-zone this week but the Consumer Price Index this morning should provide an indication of inflation with the headline measure widely expected to remain unchanged at 2.5%, which is still above the Central Bank's comfort zone. In addition, Industrial Production in June is also released this morning and the consensus forecast is for an increase of 1.4% taking the annual growth rate upto 4.2%.

The Pound has enjoyed a decent move against the Euro as we closed above the significant resistance level at 1.4500 last week amid continuing unrest in the Middle East. There is a host of important inflationary data released in the UK this week that will give direction on the Bank of England's next move with regard a tightening of interest rates. While the Consumer Price Index is widely expected to remain unchanged, the initial estimate for UK GDP may have taken the year-on-year growth rate to 2.5% in the second quarter and that would raise the probability of a rise in UK rates at some point this year as the BoE attempt to cope with the threat of rising inflation.

Data Released 17th July

EU 10:00 Harmonised CPI (June)
EU 10:00 Industrial Production (May)

U.S 13:30 Empire State Index (July)
U.S 14:15 Industrial Production (June)
U.S 14:15 Capacity Utilisation (June)

written by Adam Solomon