Daily Insight

The Pound has been making steady gains against the majors in recent weeks but following a report from the Confederation of British Industry yesterday, Sterling eased 0.1% against the Dollar and the Euro. The CBI industrial trends survey, which provides a good insight into UK manufacturing activity, came in weaker than expected and the report suggests that economic growth will begin moderating in the coming months, which will in turn lead to lower inflationary pressures and prevent any further rate increases being necessary. However, the monthly survey also supported the view that rising prices will lead to a one more quarter-point rise in UK interest rates next month and fully expect the BoE to lift rates to 5.0% by the turn of the year.

The Euro inched lower against the Dollar yesterday following a disappointing report on French consumer spending while elsewhere, upward revisions of the Euro-zone current account deficit proved unable to boost the ailing currency despite expectations that the ECB will continue monetary tightening in December. In addition, Industrial orders jumped significantly in the figures for August by a massive 14.3% year-on-year despite expectations a more modest rise towards 9.7%. The consistent performance of European industrial production and manufacturing output has been the primary source for economic growth this year and sustained gains in the European export industry has led to the fastest growth since 2000. The Euro has lost further ground against Sterling this morning despite a better-than-expected report on German business confidence, which rose for the first time in four months in October led by a sharp decline in oil prices.

The Dollar made modest gains against both the Euro and the Pound yesterday as we build up to the monthly FOMC rate announcement this evening and the tension in the market is directed at the Fed's accompanying statement, which should provide an indication of future monetary policy and whether the committee will keep U.S interest rates on hold at 5.25% in the coming months. However, in recent weeks there have been a barrage of hawkish rhetoric from key Fed officials and if the statement doesn't match expectations, the Dollar could come under pressure against the Pound. There was a sparse supply of economic data yesterday with the sole release being the Richmond business activity index, which provides an insight in to the ISM report later this month and confirmed an underlying weakness in the U.S manufacturing sector. In addition to the FOMC interest rate announcement, there is some significant housing data released this afternoon in the States and following the unexpected rise in sales last month, existing homes sales is widely expected to decline to an annual rate of 6.23 million in September.

Data Released 25th October

GER 09:00 Ifo Business Confidence Index (October)

U.S 15:00 Existing Home Sales (September)
U.S 19:00 FOMC Rates Decision

written by Adam Solomon