Daily Insight

The Pound has come under increased pressure towards the latter part of this week and fell a further 0.3% versus the Euro yesterday, to close under 1.4700 for the first time in nearly a month. Therefore, Euro buyers would be well advised to take advantage of the current market rate because as speculation continues to grow that the BoE will not enter a sustained cycle of monetary tightening, we can expect the Euro to make further gains. Since the Bank of England decided to lift interest rates for the first time in 14-months, there has been a string of poor economic data that hasn't supported a further rate rise over the coming months. This week, Factory-gate and high street inflation has showed signs of moderating in July while UK unemployment has hit a six-year high with the number of people out of work jumping by 3,000 on the month. The negative sentiment surrounding the Pound continued yesterday as UK Retail Sales fell for the first time in six months in July with sales dropping 0.3%. Consumer Spending represents two thirds of the UK economy and the recent rise in confidence would of been one of the primary reasons for the Bank of England to lift interest rates this month. Sterling may decline further against the majors this morning on the release of PSNCR index, which records the amount of money the government has to borrow to meet its expenditure.

The Euro made significant gains against the Pound yesterday despite a host a soft economic data, which has provoked suspicion that the ECB won't be as aggressive towards monetary tightening as previously thought. Economic growth in the Euro-zone hit a six year high in the second quarter but the inflation data yesterday showed that the Harmonised Index of consumer prices fell 0.1% in July to take the annual inflation rate down to 2.4%, which was slightly under forecasts of 2.5%. In addition, Euro-zone Industrial Production came in weaker than expected for the month of June, dropping 0.1% versus expectations that output would remain unchanged from May. The Euro may make further gains this morning if the EU Trade Balance shows that the deficit in goods and services unexpectedly narrowed in June.

The Dollar also made gains against the Pound yesterday, firming 0.2% to open this morning under 1.8900. Following a weaker than expected report of U.S leading economic indicators, the Dollar bounced back in the wake of the Philadelphia Fed Index, which analyses growth in manufacturing in the region. The index was widely expected to show a reading slightly above 6.0 in August but according to the Federal Reserve Bank in Philadelphia, the region's manufacturing sector expanded to a reading of 18.5 this month led by a sharp rise in new orders and shipment components. The Dollar has been under increased pressure of late as economic growth looks to moderate in the States while inflation seems to be slowing following the Fed's prolonged campaign in lifting interest rates 17-months in succession. There is some significant data released this afternoon with U.S consumer confidence widely expected to decline further in August for the fourth in five as the housing market continues to show signs of cooling while higher petrol prices are weighing on consumer sentiment.

Data Released 18th August

UK 09:30 PSNCR (July)

EU 10:00 Trade Balance (June)

U.S 14:45 Michigan Sentiment (August Prelim)

written by Adam Solomon