Daily Insight

The Pound received a boost yesterday ahead of the Bank of England interest rate announcement later this week as momentum continues to build in the UK housing market despite forecasters anticipating a relative slowdown in the second half of the year. Mortgage Approvals in the UK rose to the highest level since January this year with lenders distributing 120,000 home loans in June, which was significantly more than expected, while Net mortgage lendings remain near the 2-year high set in June 2004. The BoE revived the UK property market 12 months ago by cutting interest rates to the current 4.50% and the data released yesterday suggests that housing will continue to support consumer demand and economic growth throughout the remainder of 2006. The Pound may make further gains against the majors today with the CIPS Manufacturing Survey released this morning and forecasters are anticipating that the recent revival in output will decline modestly in July, dropping to a reading of 54.5 from 55.1 in June.

The Euro remained relatively unchanged against the majors yesterday as we closed around 1.4640 versus the Pound despite Industrial and Consumer confidence jumping to a five-year high in July. The Sentiment Index unexpectedly rose to the highest level since 2001 last month while Euro-zone inflation accelerated at the fastest pace since October last year, which will prompt speculation that the ECB will continue raising interest rates. The focal point today in terms of economic data released will be the Purchasing Manager's Index for Manufacturing in the Euro-zone region and it is widely expected to remain at an elevated level in July and perhaps showing a very slight decline while elsewhere, unemployment in Europe is expected to stay unchanged at 7.9%.

The U.S Dollar came under further pressure yesterday as it looks increasingly likely that the Fed will hold interest rates at 5.25% in August for the first time in their 18-month campaign. However, there was some positive economic data released in the States yesterday as Manufacturing output in the Chicago area rose significantly in July as production increased in order to cope with consumer demand. The Chicago PMI accelerated to a reading of 57.9 this month despite forecasters anticipating a decline towards 56.5. However, the Dollar was largely unaffected on the release of the figure and we continued to trade uptowards 1.8700 against the Pound at the close. There is some hugely significant inflation data released in the States today with Personal Income and expenditure widely expected to increase by 0.2% in June but consumption and the PCE Deflator, the Fed's preferred measure for inflation, is expected to remain unchanged from May. This would signal that interest rates are at an appropriate level as the U.S economy continues to decelerate.

Data Released 31st July

UK 07:00 Nationwide House Prices (July)
UK 09:30 CIPS Manufacturing Survey (July)

EU 10:00 Unemployment Rate (June)
EU 09:00 PMI Manufacturing (July)

U.S 15:00 Construction Spending (June)
U.S 15:00 Pending Home Sales (June)
U.S 15:00 ISM Manufacturing (July)
U.S 21:00 Domestic Auto Sales (July)

written by Adam Solomon