Daily Insight

Initially, the Pound declined against the Dollar yesterday, dropping 0.4% by the close of trading last night and it seems the increased volatility can be attributed to a winding down of dollar positions ahead of the holiday period. However, overnight Sterling found some support and made widespread gains against both the Euro and the Dollar following a typically robust report on UK house prices. The RICS house price balance held near the four-year high for the month of November and came in well ahead of expectations as a strengthening labour market and faster economic growth continues to propel house prices.

The Euro continued to decline against the majors yesterday, falling an additional 0.1% versus the Dollar and overnight we have traded above 1.4900 against the Pound following a distinct lack of economic data released in the Euro-zone. However, the single currency may receive a timely boost this morning amid the release of the German Ifo index, which is expected to show that business confidence remained at a 15-year high in December. The index will reflect the consensus forecast that the European economy will continue to expand in 2007 despite the introduction of the value-added tax increase at the start of next year.

The Dollar climbed against the majors yesterday despite a damaging report on the U.S current account, which unexpectedly showed that the deficit had widened to a record $225.6 billion in the revised estimate for the third quarter. The deficit was widely expected to narrow from the final $217.1 billion in the second quarter as the downturn in energy prices took effect. There is a host of significant economic reports released this afternoon in the States with the focus falling on the latest round of U.S housing data for the month of November. The number of housing starts is expected to rebound from the lowest level in over six years as a significant drop in prices helps spur demand. Elsewhere, a separate report from the labour department may show that producer prices rose 0.5% after falling 1.6% in October, which may rekindle concerns over rising inflation.

Data Released 19th December

GER 09:00 Ifo Index (December)

U.S 13:30 Producer Price Index (November)
- Ex Food & Energy

U.S 13:30 Housing Starts (November)

written by Adam Solomon