Daily Insight

The Dollar stood firm against the majors yesterday despite a worse than expected report on the U.S trade balance, which showed that the deficit in goods and services actually widened to a record $69.9 Billion in August following a significant rise in energy prices for the same period as the shortfall with China reached an all time high. The deficit rose 2.7% from the previous record set in July and exceeded market expectations although the Dollar stood firm against the Euro and the Pound on the release of the data. However, it can be argued that the gap in trade has indeed peaked this year since oil prices have tumbled since August by a startling 25% and therefore, we can expect the gap to narrow in the coming months, which may be the reason for lack of movement in the market. The Dollar has achieved a 3-month high against the Pound this week following a round a very positive economic data and increased speculation that the Federal Reserve will not begin monetary easing in the first quarter of 2007. However, Dollar sellers would be well advised to take advantage of the current rate or at least work a stop order in the market to protect against adverse movement particularly following the poor data yesterday. There is some significant data released in the States this afternoon with Retail Sales widely expected to increase for the third consecutive month in September following a drop in petrol prices and growth in personal income.

The Pound received a timely boost yesterday, firming 0.2% against the Dollar to close just under the resistance at 1.8600 following a report on the UK housing market, which showed that prices had risen to the highest level in four years over the last quarter. Elsewhere, a quarterly report from the British Chamber of Commerce showed healthy growth in the UK economy this year with a significant pick-up in manufacturing bolstering speculation that the Bank of England will lift UK interest rates once before the turn of the year.

The Euro gained 0.2% against the Dollar yesterday despite a distinct lack of any significant economic data although comments made from ECB member, Guy Quaden reiterated concerns of higher inflation, saying a further rise in Euro-zone interest rates was 'very likely' before the turn of the year. The Euro had been under pressure following the soft tone of the press conference last week where Jean-Claude Trichet, the chairman of the Central Bank, failed to use the same language that has become synonymous with signalling a further rate hike the following month. The sole piece of European data yesterday was the final estimate for German consumer price inflation, which came in unchanged 1.0% year-on-year in September.
Data Released 13th October

U.S 13:30 Retail Sales (September)
U.S 13:30 Import Prices (September)
- Export Prices
U.S 13:30 Business Inventories (August)
U.S 14:45 Michigan Sentiment (October Prelim)

written by Adam Solomon