Daily Insight

Following on from last week, the Dollar continued to remain resilient against the majors following a relatively poor week in terms of economic data with U.S retail sales falling 0.4% in September, which reflects the significant drop in oil prices over the same period. However, the Dollar managed to plough through the major support level at 1.8600 against the Pound and also made gains versus the Euro as renewed interest rate expectations in the States provides a boost. Therefore, this week's round of key data will take on added significance and we can expect a fairly volatile week following the release of the September inflation indices on both sides of the Atlantic. U.S consumer price inflation is widely expected to moderate on the month although the core rate may increase to 2.9% from August, which will keep Fed officials on red alert and do little to ease inflation concerns. Elsewhere, the Tic's report on net capital inflows will be watched closely particularly following August's record high U.S trade deficit although the lack of reaction for the dollar on the release of the trade report suggests the market is being driven by interest rate speculation following renewed inflationary pressures and hawkish commentary from Fed officials. There is some significant economic data released this afternoon in the States with the Empire State index expected to show a drop in U.S manufacturing for October with the headline measure dropping to a reading of 12.0 from 13.8 the previous month.

The Euro has come under intense pressure versus the majors over the past week or so despite the apparent lack of any significant data released in the Euro-zone. However, with the ECB adopting a more cautious approach to monetary tightening over the next month the final estimate of Euro-zone consumer price inflation tomorrow will take on added significance and should confirm inflation at 1.8% year-on-year with a risk of a downward revision to 1.7%. The 25% drop in oil prices since mid-July has pushed inflation under the Central Bank's 2.0% target and the report tomorrow should do little to lift expectations. Elsewhere, the chairman of the ECB, Jean-Claude Trichet, is expected to deliver a speech on how to improve European economic growth this afternoon and his comments may provide a boost to the ailing Euro as we continue to trade up towards 1.4850 against the Pound.

There is a host of significant economic data released in the UK over the next week, which should provide an insight into future interest rate expectations in November with the consumer price index for September, a preliminary report on UK GDP growth in the third quarter and the release of the minutes from the Bank of England's last policy meeting. In particular, the minutes and more specifically the tone of voting on the monetary policy committee will take on added significance as the significant drop in energy prices eases inflation concerns and we can expect at least one member in David Blanchflower to vote against a rise in UK interest rates.

Data released 16th October

U.S 13:30 Empire State Index (October)

written by Adam Solomon