Daily Insight

The Euro failed to make any significant gains against the majors yesterday, falling flat versus the Dollar and climbing just 0.2% against the Pound despite the ECB's decision to lift European interest rates for the sixth time this year. However, it was well factored into the market that policymakers would lift rates by a further quarter-point to 3.5% and it was the accompanying statement that would take centre stage as we looked for direction on future monetary policy. In the aftermath of the announcement, the chairman of the Central Bank, Jean-Claude Trichet, failed to strike the sort of hawkish tone that was anticipated and the language used seemed to suggest that the ECB will monitor price pressures over the coming months, adopting a 'wait and see' policy. Although, Trichet also highlighted that the current interest rate is still at a relatively low level, which has fuelled speculation that the ECB will continue raising interest rates in the first quarter of next year. The Euro fell flat in the aftermath of his comments but this morning the single currency may receive a boost as German industrial production is widely expected to increase by 0.5% from September.

The Pound came under increased pressure yesterday, dropping 0.2% against the Dollar and the Euro as the Bank of England kept interest rates at 5.0% in December while we await the release of the minutes of the meeting to gain an insight into future policy. It was widely anticipated that the MPC would keep rates on hold this month but the Pound has continued to come under pressure this week amid speculation that UK interest rates will remain at 5.0% over the coming months following a dramatic slump in consumer spending. Sterling slumped to the lowest level against the Euro in more than a week despite yet another strong report on the UK housing market. The Halifax index showed that house prices rose at their fastest pace since March 2005 last month despite interest rates being at the highest level in five years.

The Dollar has managed to consolidate against Sterling this week after falling to the lowest level since September 1992 following a barrage of weak economic reports and increased speculation that the Federal Reserve would begin cutting U.S interest rates next year. However, the Dollar may come under some intense pressure this afternoon as we await the release of the monthly U.S job report, which is expected to confirm that growth held near the one-year low in November. In addition, the unemployment rate may edge up to 4.5% from 4.4% in October, which reflects the overall slowdown of the U.S economy. Although it is an increasingly difficult figure to predict, the consensus is that the economy added 100,000 workers to payrolls last month and with economic growth largely dependent on a robust labour market, anything below that figure will surely put the Dollar under further pressure.

Data Released 8th December

GER 11:00 Industrial Production (October)

U.S 13:30 NonFarm Payrolls (November)
- Unemployment Rate
- Average Hourly Earnings

U.S 15:00 Michigan Sentiment (December Prelim)

written by Adam Solomon