Daily Insight

Following on from last week, the Dollar has come under increased pressure amid the release of the University of Michigan's Preliminary index for U.S consumer sentiment on Friday, which showed that confidence unexpectedly dropped in July despite significantly higher petrol prices. The index fell to a reading of 78.7 last month, which was well below forecasts and the lowest level since October last year. The Dollar weakened against the Pound and the Euro as speculation continues to gather momentum that the Federal Reserve have finished their two-year campaign in raising U.S interest rates and will again look to hold at 5.25% next month. Last week, several indices indicated that economic growth in the States will moderate in the third quarter while inflation looks to have peaked, which provides the clearest indication yet that the Fed won't need to continue raising rate beyond the current level. The Dollar has declined against the Euro this morning on the assumption that higher interest rates are having a negative impact on economic activity and in the data released this week, the U.S housing market may continue to show signs of cooling as we approach a two-year low on home sales while elsewhere, durable goods orders are widely expected to drop by upto 0.5% in July.

The Euro has rebounded sharply against the Pound in the last week as we continue to trade down from the year high at 1.4850 as economic growth in the Euro region accelerates to a six year high last month while the annual inflation rate also looks to be increasing, which should prompt the ECB to lift interest rates beyond the current 3.0%. However, the Euro may come under pressure this week on the news that German business and investor confidence fell in the surveys for August while the Provisional estimate for GDP in the second quarter may show that growth in Europe's largest economy continues to expand. The Ifo Index, which analyses business confidence in Germany, is widely expected to show further signs of cooling in August after reaching a 15-year high in June. Elsewhere, the ZEW survey for economic sentiment may show signs of robust growth in July following an unexpected drop the previous month.

The Pound has rallied furiously since the Bank of England unexpectedly decided to lift UK interest rates this month but following a week of soft economic data, expectations have dramatically shifted on whether the BoE will enter a sustained cycle of monetary tightening. Factory-gate and High street inflation showed signs of moderating in July, dropping towards an annual rate of 2.4% while UK unemployment surged to a six year high will the number of people out of work jumping by 3,000 on the month. In addition, the minutes from the BoE's last policy meeting seemed to suggest that this months decision to raise rates was merely a measure to contain inflation and the language used was particularly negative in relation to a further tightening of rates in the coming months. There is a sparse supply of economic factors that could potentially drive the Pound this week with the CBI industrial trends survey released tomorrow and the general consensus is for a modest drop in business expectations and growth in new orders. The focus this week will fall on UK GDP data in the second quarter after the initial estimate showed economic growth at 0.8% while elsewhere, Consumer spending is widely expected to increase by 0.7% in July, which would be in stark contrast to the drop in retail sales we saw last week.

Data Released 21st August

UK 09:00 Rightmove House Prices

written by Adam Solomon