Daily Insight

The Pound remained largely unchanged against the majors yesterday as we build up to the Bank of England interest rate announcement at midday today and it is widely anticipated that the monetary policy committee will raise UK interest rates to 5.0%, the highest lending rate in 5-years, as inflation still holds above the government's 2.0% target. In a recent speech to the House of Lords economic affairs committee, the governor of the BoE, Mervyn King, gave a strong indication that a rise in rates was likely this month as the economy expanded at the fastest pace in two years over the last quarter. The Pound may make some gains against the majors although the decision to lift rates by a further quarter-point has been largely factored into the market over the past month and we will have to wait until the 15th November and the release of the minutes of the meeting to get an insight into future policy and whether UK interest rates will continue to rise in the first quarter of 2007. In terms of economic data, the Pound may receive a boost this morning following a report on the UK global trade balance, which is expected to show that the deficit in goods and services actually narrowed in September.

The Euro held firm against the Dollar yesterday and made modest gains versus the Pound despite a distinct lack of economic data released both in Europe and the U.S. However, this morning the single currency may receive a much needed boost following the publication of the ECB monthly bulletin, which is expected to mirror the hawkish rhetoric from the recent press conference where the chairman of the ECB, Jean-Claude Trichet, gave a clear signal that European interest rates are set to rise for the fifth time this year in December. In addition, the ECB banking press conference will be watched with interest today as we await any further indication that policy makers will continue monetary tightening into 2007.

The Dollar remained unchanged yesterday and close to the recent lows achieved against the Euro and the Pound as the impact of Tuesday's mid-term elections saw the Democrats take control of the House of Representatives while control of the Senate still remains in the balance. There is a plethora of significant economic factors that could potentially influence the Dollar this afternoon with the focus falling on the release of the U.S trade balance, which is widely expected to narrow from a record level in September as oil prices fell and demand from abroad spurred U.S exports. The gap in trade for goods and services may of narrowed by the most in nearly two years to $66 Billion as oil prices scaled back by 25% since mid-July and the value of the dollar dropped, making exports for attractive to foreign investors.

Data Released 9th November

UK 09:30 Global Trade Balance (September)
- EX EU Trade

UK 12:00 Bank of England Interest Rate Announcement

EU 09:00 ECB Monthly Bulletin Published

U.S 13:30 Trade Balance (September)
U.S 13:30 Export Prices / Import Prices (October)
U.S 13:30 Initial Jobless Claims (w/e 4th November)
U.S 15:00 Michigan Sentiment (November Prelim)
U.S 15:00 Wholesale Inventories (September)

written by Adam Solomon