Daily Insight

The Pound made significant gains against both the Euro and the Dollar yesterday and with the ECB interest rate announcement due at midday today, it looks increasingly likely that Euro buyers would be well advised to take advantage of the current rate. Sterling firmed up a further 0.4% against the Dollar yesterday and closed towards the yearly high at 1.4850 against the Euro amid the release of some surprisingly strong UK retail data. The Confederation of British Industry distributive trades survey came in much better than expected as consumers returned to the highstreet in August and the Pound has made gains on speculation that the Bank of England with have the room to raise UK interest rates once more this year. That sentiment was further emphasised in a report from the BoE on UK mortgage approvals, which rose to a six-month high in July with the number of home loans approved reaching 120,000. This suggests that growth in the UK housing market continues to flourish and the data released this morning has showed that house price inflation accelerated at the fastest pace in a year this month according to the Nationwide survey with the average cost of a home rising 6.6% from a year earlier. Elsewhere, the Pound may make further gains this morning with UK consumer confidence widely expected to mirror the CBI trades survey as a pickup in spending propels economic growth.

Without doubt, the focus today will fall on the ECB interest rate announcement and accompanying press conference. It is widely anticipated that the Central Bank will hold Euro-zone interest rates at 3.0% in September but the Euro may stage a recovery against the Pound if the Chairman, Jean-Claude Trichet, signals a further tightening of rates in October. Usually, policy makers within the ECB give the market notice of a rate hike a month prior to the announcement and the sort of language used in the statement will become evermore significant with the term "vigilant" used as a trigger for an impending rise in interest rates. Therefore, it looks increasingly likely that Euro buyers would be well placed to take advantage of the current rate as a correction in the market looks imminent particularly if we get a good indication today that a rise in rates is likely over the coming months. In addition, there is some significant economic data released this morning that could add weight to calls for higher interest rates in the 12 nations sharing the Euro with the Flash Consumer Price Index expected to ease slightly in August from an annual rate of 2.4% last month. Elsewhere, a report of Gross Domestic Product may increase significantly in the second quarter with forecasters anticipating that economic growth accelerated to 0.9% with the core rate up 2.4% from 2.0% in the first quarter.

The Dollar came under further pressure yesterday amid a soft report on U.S economic growth in the second quarter. The revised estimate for GDP increased to an annual rate of 2.9%, which was slightly ahead of expectations but may point to slowing growth over the coming months. Significantly higher interest rates and rising energy prices have had a devastating effect on the U.S housing market and personal spending, which accounts for a large proportion of the economy, is expected to weaken further this year, fuelling speculation that the Federal Reserve won't raise interest rates again in order to prevent the economy from overheating. However, a report this afternoon on U.S personal income and expenditure, the Fed's preferred measure of U.S inflation, is widely expected to show that consumer spending in the States rose by the most on six months in July as a rise in personal income supplements near-record petrol prices. Spending accounts for two thirds of the U.S economy and economists estimate that a significant drop may slow economic growth to a degree that the Federal Reserve will be able to keep interest rates on hold. However, the report this afternoon may give the Dollar a reprieve as Personal income is expected to rise by 0.8% in July from 0.4% in June.

Data Released 31st August

UK 10:00 Consumer Confidence (August)

GER 08:55 Unemployment (August)

EU 10:00 Flash Consumer Price Index (August)
EU 10:00 Gross Domestic Product (Q2)
EU 10:00 EC Economic Sentiment (August)
EU 12:45 ECB Interest Announcement & Press Conference at 13:30

U.S 13:30 Initial Jobless Claims (w / e 26th August)
U.S 13:30 Personal Income & Expenditure (July)
U.S 15:00 Factory Goods Orders (July)
U.S 15:00 Chicago PMI (August)

written by Adam Solomon