Daily Insight

The Pound came under renewed pressure yesterday, dropping 0.5% against the Dollar from an 18-month high earlier in the session and a further 0.1% versus the Euro following a band of weak economic reports. UK factory-gate inflation accelerated at the slowest annual pace in over two years for the month of October as energy prices continue to decline. Producer output prices climbed just 1.7% year-on-year last month, which is the lowest since March 2004 and well under market expectations. As a result, the Pound declined against the majors and therefore the release of the UK consumer price index this morning will take on added impetus as inflation is predicted to rise to 2.6% year-on-year in October, which is way in excess of the government's 2.0% target and may result in fresh calls for a further tightening of UK interest rates.

The Euro continued to make gains against the majors yesterday, firming an additional 0.3% against the Dollar to trade at a 10-week high despite the apparent lack of any fundamental data. However, the single currency may come under some pressure this morning as European economic growth probably slowed in the preliminary estimate for the third quarter following the fastest growth in 6-years earlier in the year. The slowdown in economic expansion can be attributed to a variety of factors including higher interest rates, the planned value-added tax increase in Germany and the sharp downturn of growth in France over the last quarter. Elsewhere, the Euro may come under further pressure as German economic growth slowed by more than forecast in the third quarter while the ZEW survey may show a further drop in investor confidence this month.

Initially, the Dollar declined against the major currencies yesterday and we may see further losses this afternoon amid a plethora of significant economic reports with U.S retail sales expected to fall for a second month in succession in October following the sustained drop in fuel prices over the same period. Sales may slip 0.4% from September while a separate report on U.S producer price inflation may also show a second consecutive decline, the first back-to-back decrease since June 2004. Producer prices is expected to show a further 0.5% drop in prices for the month of October, which only emphasises moderating inflationary pressures in the States, which in turn leads to increased speculation that the next move for the Fed will be a cut in U.S interest rates. However, the focus today in terms of economic reports will be the minutes from the last FOMC rate announcement where policy makers elected to hold rates at 5.25% and it will be interesting to see if the report provides an insight into future monetary policy.

Data Released 14th November

UK 09:30 Consumer Price Index (October)

EU 10:00 Flash GDP (Q3)

GER 10:00 ZEW Expectations Balance (November)

U.S 13:30 Retail Sales (October)
U.S 13:30 Business Inventories (September)
U.S 13:30 Producer Price Index (October)
U.S 19:00 FOMC Minutes 24th October Meeting

written by Adam Solomon