Daily Insight

The Pound came under pressure early yesterday following reports that police had foiled a terrorist plot to blow up a UK airline. The authorities raised the alert status to 'critical' after unveiling a plot to blow up several UK airlines heading for the States. The currency markets reacted to the news as traders sought relative safe havens in the U.S Dollar and the Swiss Franc with Sterling falling by the most in nearly two weeks. However, by the close of the session the Pound sat relatively unchanged versus the Euro as we continue to hold firm around 1.4800. There is a sparse supply of economic data released in the UK for the remainder of the week and we can expect the market to focus on geopolitical issues such as the continued unrest in Lebanon and the terrorist threat at home.

The Euro has been steadily gaining against the Dollar this week as we approach the significant barrier at 1.3000. Although the Euro also came under pressure yesterday following the foiled terrorist attack in the UK, there was some positive economic news for the single currency as the ECB monthly bulletin suggested that Euro-zone interest rates were still at a 'low' level, indicating that further monetary tightening would be necessary. In addition, the year-on-year growth in French Industrial Production grew at 3.3%, which provides a measure of economic growth in the second quarter. There has already been some significant inflation data released in Europe this morning as reports showed that the French economy grew at the fastest pace in 5-years in the second quarter and it now looks increasingly likely that faster growth will point to higher interest rates in the coming months.

The Dollar staged a seemingly unlikely rally yesterday in the wake of the U.S Trade Deficit narrowing by slightly more than expected to $64.8 Billion in June as exports rose to the highest level ever recorded helped by accelerating economic growth in Europe and Japan and a weaker Dollar. Elsewhere, the weekly jobless report, which provides an indication of growth in the labour market, showed that the number of people out of work and claiming benefits actually rose to 319,000 with 7,000 new claims in the last week. However, the Dollar's move came after the release of the data and from a technical point of view, we tested the major support level at 1.8980 on three separate occasions and the third time we broke through to trade under 1.8900 before closing well above that level. The focus today in terms of economic data released will be Retail Sales in the States and the consensus forecast is for an increase of 0.9% in July as higher petrol prices gave a significant boost to sales.

Data Released 11th August

U.S 13:30 Retail Sales (July)
- Core Retail Sales

U.S 13:30 Business Inventories (June)

U.S 13:30 Import Prices (July)
- Export Prices

written by Adam Solomon