Daily Insight

The Pound made further gains against the majors yesterday, firming 0.4% against the Dollar and a further 0.1% versus the Euro following a band of positive economic data, which only emphasised the need for a further rise in UK interest rates. Firstly, the National Institute of Social and Economic Research released a positive forecast into UK economic growth in the three months to October with the economy expanding 0.7% in the last quarter despite the BoE's decision to lift interest rates in August. The robust growth in housing, manufacturing and the service sector combined with an obvious pickup in consumer sentiment has propelled economic growth this year and it seems increasingly likely that the BoE will continue monetary tightening into the first quarter of 2007. Elsewhere, the Pound received a further boost as the British Retail Consortium released their monthly survey, which showed modest growth in sales for the month of October with the core rate up 2.6% year-on-year last month and the report will only fuel speculation that the MPC are set to raise their benchmark lending rate to 5.0% in the monthly announcement tomorrow.

The somewhat positive sentiment surrounding the Euro continued yesterday after Euro-zone retail sales unexpectedly rose to a reading of 52.8 in October, which reinforces suggestions that the European Central Bank will lift interest rates for the fifth time this year in the first week of December. The pickup in consumer spending may help fuel economic growth in the final quarter of the year as the economy has to cope with significantly higher borrowing costs and a drop in Euro-zone exports as the slowdown in U.S economic growth continues to weigh on demand. The Euro rose 0.4% against the Dollar but came under further pressure against the Pound following a separate report on German industrial production, which declined for the first time in three months in September.

The Dollar came under increased pressure yesterday following comments from Janet Yellen, president of the San Francisco Fed, who said that some countries with high liquidity were less likely to invest money in the U.S, a sentiment previously echoed by the former Federal Reserve chairman Alan Greenspan. In addition, the Democratic Party won control of the House of Representatives in the U.S mid-term elections last night while overall control of the upper house remains too close to call that a re-count may be needed. However, some economists had expected the Dollar to make gains in the event of a Democratic victory, which would limit the Republican's ability to influence geo-political risk.

Data Released 8th November

No Data of Significance

written by Adam Solomon