Daily Insight

The Euro has been in rapid decline this week following the release of the ZEW index for investor confidence in Germany, which fell for the seventh consecutive month and to the lowest level in 5-years in the month of August. Therefore, the Ifo index, which measures business confidence in Europe's largest economy, will take on added significance this morning with forecasters anticipating a further drop in confidence with a reading 104.8 expected following a modest decline of 105.6 in July. Therefore, the Euro may come under pressure if the index has fallen by more than predicted but it should remain at elevated levels indicating that growth in the German economy continues to accelerate. There is a host of significant data released in the Euro-zone this morning including the Ifo index with German construction spending surging forward by the most in over 10-years in the second quarter, which will undoubtedly spur economic growth. While elsewhere, Gross Domestic Product, the value of all goods and services, expanded by 0.9% in the second quarter, which provides further evidence that growth in Europe's largest economy will provoke a further rise in Euro-zone interest rates.

The Pound has enjoyed a decent rally against the majors this week despite the apparent lack of significant economic data released in the UK and that trend continued yesterday with Sterling strengthening by 0.2% against the Dollar and a further 0.3% versus the Euro. The positive sentiment surrounding the Pound stemmed from an unexpectedly strong CBI industrial trends survey, which showed that new orders have increased to a 20-month high in August, suggesting that production and manufacturing output continue to show signs of growth in the third quarter. The survey has highlighted renewed inflation concerns and may prompt speculation that the BoE will need to raise UK interest rates for the second time this year.

The volatility surrounding the U.S Dollar increased yesterday amid the release of a report on the sales of existing homes in the States, which provided a further indication that the Fed's aggressive tightening of U.S interest rates has dramatically cooled the housing market. Sales of previously owned homes fell by 4.1% in July, which was far more than expected as higher mortgage rates discourage buyers, resulting in the biggest amount of unsold homes on the market in more than a decade. The Dollar declined on the release of the data as sales fell to an annual rate of 6.33 million, which represents the lowest total since January 2004. However, by the close of trading last night we had retraced much of the gains as investor's seemed divided on whether the Federal Reserve will lift interest rates next month as house prices continue to rise despite the influx of properties on the market. There is a host of significant economic data released in the States this afternoon with Durable Goods Orders widely expected to increase by 0.2% in July while elsewhere, a further report on the U.S housing market may show that sales of new homes slumped to an annual rate of 1.11 million following a modest drop in June.

Data Released 24th August

GER 10:00 IFO Index (August)

U.S 13:30 Durable Goods Orders (July)
U.S 13:00 Initial Jobless Claims (w/e 19th August)
U.S 15:00 New Home Sales (July)

written by Adam Solomon