Daily Insight

The Pound received a timely boost yesterday, firming 0.2% against the Dollar and the Euro following a report on the UK housing market, which showed robust growth in the sector with prices jumping 2.0% on the month in October,. bringing the annual growth rate to a 22-month high. According to the Rightmove house price index, the sector continues to expand despite the Bank of England's decision to lift UK interest rates in August and the report yesterday will only increase expectations of a further quarter-point rise next month. There is some hugely significant data released in the UK this morning with the release of the September consumer and retail price index, which are expected to confirm moderating inflationary pressures following a dramatic fall in energy prices over the last quarter. Consumer prices may rise by just 0.1% from August while the annual rate of inflation is widely expected to shrink back towards 2.4%, which is still above the government's 2.0% target for 2006.

The Euro failed to make any gains against the majors yesterday following a distinct lack of fundamental data released in the Euro-zone as we around the resistance level at 1.4850 against the Pound. However, there is some significant economic data released this morning that could potentially reinvigorate interest rate expectations in the region with the release of the harmonised consumer price index. Prices are expected to remain unchanged in September following the initial estimate of 1.8% the previous month and the seemingly moderating inflation concerns correlates with the 25% drop in oil prices since mid-July. Elsewhere, the Euro may receive a boost from a separate report on Euro-zone industrial production, which is widely expected to remain at an elevated level as strong momentum in the manufacturing sector continues to spur economic growth in the third quarter. In addition, the Euro may come under increased pressure this morning following a report on economic sentiment in Europe's largest economy as the ZEW survey is expected to decline further this month, which will raise concerns of moderating economic growth.

The Dollar held firm against the Euro yesterday following a better-than-expected report on manufacturing in the New York area as the Empire State index rose to a reading of 22.9 in October, the highest level in four months. The unexpected increase can be attributed to the recent drop in energy prices and the cost of raw materials and it seems investment will help boost economic growth in the final quarter of this year and in turn weather the housing slump, which threatens to curtail economic expansion. There is a host of significant data released in the States this afternoon with the focus falling on the Producer Price Index, which is widely expected to show a 0.7% drop in prices last month following a sustained fall in the fuel costs. Elsewhere, the Dollar may come under further pressure from a separate report on U.S industrial production, which may show a 0.1% drop in output as producer prices decline for the first time since February.

Data Released 17th October

UK 09:30 Consumer Price Index (September)

EU 10:00 Harmonised CPI (September)
EU 10:00 Industrial Production (September)

GER 10:00 ZEW Expectations Balance (October)

U.S 13:30 Producer Price Index (September)
U.S 14:00 TICs Net Capital Inflows (August)
U.S 14:15 Capacity Utilisation (September)
U.S 14:15 Industrial Production (September)

written by Adam Solomon