Daily Insight

The Pound made robust gains against the majors yesterday, firming an additional 0.5% versus the Euro to peak at 1.4970, the highest point since June 2005, while against the Dollar, Sterling advanced beyond the resistance level at 1.9000 following a particularly strong report on the UK housing market. Recent surveys from Halifax and Nationwide has showed house prices to be accelerating at the fastest pace in over 2-years despite the Bank of England's surprise decision to raise UK interest rates to 4.75% in August. Therefore, it looks increasingly likely that the MPC will lift rates by a further quarter-point next month as growth in the housing sector continues to accelerate and absorbs higher borrowing costs. The Pound rallied yesterday on the release of UK mortgage approvals for the month of September, which unexpectedly rose to highest level in two and a half years at 126,000 compared with a revised 120,000 the previous month and the report suggests that UK consumers are undeterred by rising mortgage rates.

There is a plethora of significant economic data released in the UK this morning with the focus falling on the Gfk gauge of consumer sentiment, which is widely expected to ease slightly in October. Elsewhere, the Pound may receive a further boost from the governor of the BoE, Mervyn King, who delivers a speech to the House of Lords economic affairs committee this afternoon and is expected to declare the need for a further tightening of UK of monetary policy. We are fast approaching the psychologically important resistance level at 1.5000 against the Euro and buyers of this currency would be well advised to take advantage of the current rate or at the very least place a stop order at 1.4900 to protect against any adverse market movement.
The Euro has been under intense pressure against the Pound over the past few weeks amid a sparse supply of significant European data but this morning the ailing currency may receive a much needed boost as Euro-zone unemployment is expected to shrink to 7.8% in the report for September. Elsewhere, the flash estimate for Euro-zone inflation is also released this morning and is expected to remain relatively unchanged at 1.7% in the initial estimate, which is slightly under the Central Bank's 2.0% comfort zone and suggests moderating inflationary pressures in the face of falling oil prices. However, with the planned value-added tax increase in Germany next year, Euro-zone inflation is not expected to remain below the ECB's target for long. Elsewhere, the EC sentiment index for consumer and industrial confidence is released this morning and may stay relatively unchanged from a reading of 109.3 in October.

The Dollar fell by a further 0.2% against the Pound yesterday but managed to make modest gains versus the Euro following a particularly soft report on U.S economic growth as personal spending rose by 0.1% in September following a 0.2% increase the previous month. However, while U.S personal income grew by 0.5% over the same period to increase by the most in three months, the PCE deflator, which is the Fed's preferred gauge of U.S inflation actually decelerated, quashing any notion that policy makers will raise interest rates from the current 5.25%. Growth in the labour market and falling fuel prices are positive news for the American consumer and will soften the effects of a slump in the U.S housing sector this year as the Fed look to keep interest rates steady over the coming months. In terms of economic data, the Dollar may receive a boost this afternoon as consumer confidence is expected to rise to the highest level since April this month as lower fuel prices encourages spending.

Data Released 31st October

UK 10:30 Gfk Consumer Confidence (October)
UK 11:00 CBI Distributive Trades (October)
UK 14:35 BoE's Mervyn King testifies to the House of Lords Economic Affairs Committee

EU 10:00 EC Economic Sentiment (October)
- Consumer / Industrial
EU 10:00 Flash HICP (October)
EU 10:00 Unemployment Rate (September)

U.S 15:00 Chicago PMI (October)
U.S 15:00 Consumer Confidence (October)

written by Adam Solomon