Daily Insight

The Pound made further gains against the Euro and the Dollar yesterday, despite the lack of any significant data released in the UK as we approach the Bank of England interest rate announcement at midday today. Over the past month, speculation has intensified that the BoE will raise borrowing costs for the first time in 12 months due to rising inflation, strong retail sales and accelerating economic growth in the second quarter. However, the MPC voted unanimously to hold rates at 4.50% in July and sentiment for the Pound may be rocked should policy makers continue to adopt a more cautious, measured approach with regard monetary tightening. In addition to the UK rate announcement, there is a host of significant data released both in Europe and the UK with the CIPS Services Survey released this morning and forecasters are anticipating that the recent pick-up in the services sector will decline modestly in July to a reading of 58.5 from 58.8 in June.

Despite a plethora of positive economic data and the assumption that the ECB will lift interest rates by 0.25% today, the Euro has continued to struggle against the Pound and yesterday the market remained relatively stagnant, hovering around 1.4650 at the close of trading last night. There was some data released in the Euro-zone yesterday with the Producer Price Index coming in as expected in July at 0.2% but the year-on-year growth exceeded expectations by climbing to 5.8%. There is also some significant data released this morning, which may fuel speculation that the ECB are set to quicken the pace of monetary tightening in the third quarter. The PMI services report is widely expected to show a decline towards 60.0 in July from a reading of 60.7 the previous month, while elsewhere, Euro-zone retail sales is expected to increase significantly in June, rising by 0.8% on the month.

The Dollar has continued to weaken in the past 24hrs as we briefly traded uptowards 1.8800 versus the Pound yesterday as the negative sentiment surrounding the Dollar continued despite a better than expected inflation report earlier this week, which has revived speculation that the Federal Reserve may actually lift interest rates for the eighteenth month in succession. However, the majority of the economic data released in the States has reiterated Ben Bernanke's assumption that U.S inflation will gradually decelerate as the economy continues to slow and therefore, we can expect the Fed to hold interest rates at 5.25% in their next meeting on August 8th. We may see further Dollar weakness throughout the course of today with the weekly jobless report widely expected to show that the number of people out of work and claiming benefits actually rose in the week ending the 29th July, while elsewhere, the ISM Non-manufacturing index is expected to remain unchanged at a reading of 57.0 in July.

Data Released 3rd August

UK 09:30 CIPS Services Survey (July)
UK 12:00 BoE Rate Announcement

EU 12:45 ECB Rate Announcement
EU 13:30 ECB Press Conference
EU 10:00 Retail Sales (June)
EU 09:00 PMI Services (July)

U.S 13:30 Weekly Jobless Claims (w/e 29th July)
U.S 15:00 ISM Non-manufacturing Index (July)
U.S 15:00 Factory Goods Orders (June)

written by Adam Solomon