Daily Insight

There is a lot of volatility in the Forex market at present and yesterday the Pound made significant gains against the majors, strengthening to a new-yearly high against the Euro at 1.4910 and we broke above 1.9000 versus the Dollar. The positive sentiment surrounding the Pound began with a better than expected report on the CBI industrial trends survey, which improved to a 21-month high this month, indicating that growth in the manufacturing sector will boost UK gross domestic product this year. However, price expectations for the next three months dropped by more than anticipated in September, dampening expectations of a further rise in UK interest rates this year. Following the Fed's decision to hold rate in the U.S this week and the particularly soft comments on the inflation, the Pound has made significant gains against the Dollar, closing well above 1.9000 last night.

The Euro has continued to struggle against Sterling over the past 24hrs, falling to a new yearly low for the second day in succession yesterday to trade above 1.4900. However, there has been some significant inflation data in France this morning, which has given the single currency a much needed boost with the Consumer Price index jumping by the most in seven years in the month of August following a significant fall in French unemployment. Consumer spending accounts for 15% of Europe's third largest economy and the index reported an increase of 3.3% in August as the French economy accelerates at the fastest pace since 2001 this year, adding to the case for a further rise in Euro-zone interest rates.

The Dollar plummeted yesterday to a two week low against the Pound at 1.9050 and came under pressure versus the Euro as we head back above 1.2800 following a damaging report from the Philadelphia Fed, which showed that manufacturing activity in the region declined for the first time since April 2003. The index dropped 0.4% this month from a reading of 18.5 in August led by a significant decline in new orders and exports out of the U.S, which correlates with the ever widening gap in trade. Following a considerable slow-down in the U.S housing sector this year, the report yesterday will only fuel concerns that growth in manufacturing will continue to decline as economic growth slows in the fourth quarter.

Data Released 22nd September

EU 10:00 Industrial Orders (July)

Written by Adam Solomon