Daily Insight

Good Morning.....and have a very Merry Christmas,

The Pound lost further ground against both the Euro and the Dollar yesterday amid a worse-than-expected report on the UK current account balance, which showed that the deficit had widened by more than anticipated in the third quarter. Sterling dropped 0.3% against the Dollar and a further 0.2% versus the Euro on the release of the data and the Pound failed to make any gains following a surprisingly robust report on UK GDP for the same period. The upward revision in economic growth for the third quarter showed that the economy expanded at the fastest annual rate in two years following a sustained pick-up in services and business investment over the past 12-months. The official figures showed that GDP rose 2.9% from this stage last year and it seems evermore likely that the Bank of England will continue monetary tightening in the New Year.

The Euro made gains against both Sterling and the Dollar yesterday as the outlook for European interest rates shifted towards a probable rise early next year following a particularly hawkish rhetoric from several ECB policy makers including the chairman, Jean-Claude Trichet. However, the single currency has come under a little pressure this morning as French business confidence unexpectedly declined as the increasing strength of the Euro hampered European exports.

The Dollar remained largely unchanged against the majors yesterday amid cautious trading ahead of the holiday period despite a barrage of economic data with the focus falling on the final GDP estimate for the third quarter. Following a dramatic slump in the U.S housing market this year, economic growth has slowed to 2.0% year-on-year in the third quarter, which may rekindle speculation of a cut in interest rates over the coming months. Elsewhere, a separate report showed that the number of people out of work and claiming first-time benefits actually rose last week to 315,000, which was largely in line with expectations. The Dollar may receive a boost this afternoon following a report on personal income and expenditure, which is considered the Fed's preferred measure of U.S inflation. Growth in wages is widely expected to remain unchanged in November while the Core PCE deflator may show a modest rise of 0.1% on the month.

Data Released 22nd December

EU 09:00 Current Account Balance (October)

EU 10:00 Industrial Orders (October)

U.S 13:30 Personal Income / Expenditure

- Core PCE Deflator

U.S 13:30 Durable Goods Orders (November)

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

written by Adam Solomon