Daily Insight

Following on from last week, the Pound continued to make gains against the beleaguered Dollar after trading at the highest point in two years above 1.9300 following a slightly better than expected report on UK GDP in the third quarter. Economic growth expanded 0.7% in the revised estimate, which was largely in line with previous figures and the report will only fuel speculation that the UK economy will be able to sustain a further rise in UK interest rates. The focus this week in terms of economic data will be UK mortgage approvals for the month of October and the consensus forecast is for a marginal drop from September, although this is not indicative of any downward momentum in the UK house market.

The Euro also made significant gains against the Dollar last week, climbing to the highest level since March 2005 and remained firm against Sterling despite a host of negative economic reports from Germany. Although hawkish comments from several ECB officials have helped encourage the possibility of a further rise in Euro-zone interest rates in 2007. The single currency may also receive a further boost this week with a host of economic reports expected to show faster inflation, swelling money supply and a rebound in business confidence, which will only fuel speculation that interest rates in Europe will rise faster than in the States.

The Dollar came under intense pressure against the majors last week following a particularly damaging report from the Council of Economic Advisors, which showed a dramatic cut in U.S growth forecasts this year as the sustained decline of the housing market continues to weigh heavily on economic expansion. As a result of the downward revisions, the Dollar declined as speculation intensifies that the Federal Reserve will begin cutting U.S interest rates next year in the face of slowing growth and moderating inflationary pressures. In addition, a worse-than-expected report on initial jobless claims has gave way to speculation that the U.S unemployment rate is set to jump to 4.6% in the monthly job report released next week. There is a plethora of significant economic data released this week as trading gets back to normal following the Thanksgiving holiday with the focus falling on U.S consumer confidence, the core PCE deflator and the ISM index for manufacturing.

Data Released 27th November

EU Euro-zone Finance Ministers Meeting

written by Adam Solomon