Daily Insight

Following on from last week, the Dollar managed to claw back some gains against the majors on Friday after falling to lowest level versus the Pound in 14-years earlier in the week. The Dollar rallied following a better-than-expected report on nonfarm payrolls, which showed that the U.S economy added more new jobs than anticipated in November although the unemployment rate did rise to 4.5% from 4.4% the previous month. In addition, a separate report on consumer confidence showed that sentiment in the Michigan area increased by more than expected in the preliminary estimate for December, which shows that despite higher interest rates and a downturn in economic growth, confidence continues to show signs of growth. The focus this week will fall on the FOMC rate announcement tomorrow evening and the Federal Reserve are widely expected to keep interest rates on hold this month. However, a number of Fed officials including the chairman, Ben Bernanke have all reiterated increased inflationary pressures over the past few weeks and therefore, the Fed may retain a tightening bias despite the evident slowdown in economic activity over the past month.

The Euro held firm against the Pound last week after the ECB elected to raise European interest rates for the sixth time this year on Thursday and although the tone of the accompanying press conference didn't give a clear indication towards future monetary policy, the Central Bank are still expected to continue raising rates into the New Year. The Euro has climbed to the highest level against the Dollar in almost two years in the last week but the single currency has come under a bit of pressure this morning as French industrial production unexpectedly fell in October, which correlates with a slowdown in economic growth over the same period. There is a distinct lack of economic reports released in the Euro-zone this week with the focus falling on the harmonised consumer price index, which may confirm upward inflationary pressures while the ZEW survey for economic sentiment is expected to show a modest decline this month.

The Pound peaked against the Dollar last week and the market has since found support around 1.9550 as we enter a pivotal week in terms of UK economic data. Sterling may receive a boost this morning as a report on producer prices may show that UK inflation has accelerated to highest rate in over nine years in the last month despite the Bank of England's decision to lift UK interest rates to 5.0% in November. A significant rise in utility bills has hampered consumer confidence this quarter, which was all too evident in the report on retail sales by the British Retail Consortium last week. Faster economic growth, a buoyant housing market and higher utility bills have kept inflation well above the BoE's 2.0% target for the past six months and if the report comes put in line with expectations, speculation will continue to mount that the MPC will lift rates further over the coming months.

Data Released 11th December

UK 09:30 Producer Price Index (November)
UK 09:30 Global Trade Balance (October)
- Ex EU
UK 09:30 DCLG House Prices (October)

U.S 15:00 Wholesale Inventories (October)

written by Adam Solomon