Daily Insight

The Pound declined for the second day in succession yesterday as UK factory production unexpectedly fell in October, primarily due to a strong Pound, which is obviously having a negative impact on UK exports. Manufacturing output dropped 0.4% from September despite expectations of a more modest increase on the month and a separate report from the Chartered Institute of Purchasing & Supply showed that factory growth slowed to the weakest pace in eight months. Sterling also failed to make any real gains against the majors in light of the Chancellor's pre-budget report where Gordon Brown predicted faster economic growth in Britain next year and increased spending on schools, pensioners and children. As widely expected, Brown raised his growth forecasts, predicting that the economy could expand as much as 3.25% in 2007 from the revised 2.75% this year. The focus today will fall on the Bank of England interest rate announcement at midday where the monetary policy committee including the governor, Mervyn King, are expected to leave rates on hold at 5.0% in December.

The Dollar continued to consolidate against the Pound as we edge closer to the support level under 1.9600 despite the apparent lack of any fundamental data released although it can be argued that the market is gearing up for the release of the monthly U.S job report this Friday. However, the Dollar may come under pressure this afternoon as the weekly jobless report may show a further increase in the number of people out of work and claiming benefits, which came in at 357,000 the previous week.

The Euro continued to hold firm against the Pound yesterday despite a worse-than-expected report on German factory orders, which surprisingly dropped for a second month in October. Orders fell 1.1% from the previous month and it seems the strength of the single currency combined with the collapse of the Dollar will surely weigh heavily on European exports as investors sought cheaper alternatives from the States. The report is in stark contrast to previous figures showing that the German economy is heading for its best performance in six years as business confidence continues to rise and retail sales increased by the most since May. The focus today will fall squarely on the ECB interest rate announcement at midday and it is widely expected that policy makers will lift rates for the sixth time this year in December. However, that eventuality is already well factored in to market movement but the Euro may receive a boost from the accompanying press conference where the chairman, Jean-Claude Trichet, may reiterate his vigilant stance towards inflation and therefore signalling a further tightening of rates over the coming months.

Data Released 7th December

UK 12:00 BoE Interest Rate Announcement

EU 12:45 ECB Interest Rates Announcement
EU 13:30 ECB Press Conference & Economic Forecasts

U.S 13:30 Initial Jobless Claims (w/e 2nd December)

written by Adam Solomon