Daily Insight

The Dollar advanced yesterday, firming 0.7% against the Pound and a further 0.5% versus the Euro despite the apparent lack of any significant economic data released in the States as falling oil prices may boost growth in the U.S economy going into the final quarter of the year. Ahead of the FOMC rate announcement tomorrow, the Dollar may make further gains against the majors as recent hawkish rhetoric from a number of key Fed officials has shifted interest rate expectations in the first quarter of 2007. However, we expect the Federal Open market committee to leave U.S interest rates on hold at 5.25% this month and the accompanying statement may support the view that the Fed will adopt a 'wait and see' policy for the remainder of 2006. There is some significant data released this afternoon with the Richmond Fed Survey, which will provide an insight into manufacturing ahead of the ISM report later this month.

The Pound came under pressure yesterday despite the lack of data released in the UK but there is a significant report this morning from the Confederation of British Industry who release their monthly report on industrial trends in the UK manufacturing sector. It is widely anticipated that the survey will show a drop in activity in October and bearing in mind the report is watched closely by the Bank of England in determining interest rates, we can expect the Pound to decline if the survey comes out in line with expectations.

The Euro stood firm against the Pound yesterday as German retail sales came in largely as expected and yet another member of the ECB's governing council has publicly announced the need for further monetary tightening. The Central Bank has raised Euro-zone interest rates on five occasions this year and we fully expect policy makers to increase borrowing costs by a further 25 basis points in December to end the year at 3.50%. Council member, Nout Wellink has joined the chorus of voices calling for a further rate hike later this year, saying that current borrowing rates are still "very low" despite the fact that inflation has seemingly dropped below the Bank's 2.0% target primarily due to a sharp decline in oil prices. The Euro may receive a boost this morning from an economic report on European industrial orders, which is widely expected to increase by 0.5% in August following the fastest economic expansion in six years.
Data Released 24th October

UK 11:00 CBI Industrial Trends Survey (October)

EU 09:00 Current Account Balance (August)
EU 10:00 Industrial Orders (August)

U.S 15:00 Richmond Fed Survey (October)

written by Adam Solomon