Daily Insight

The minutes from the last meeting of the US Federal Reserve revealed a continuing bias toward further rate rises, while also acknowledging that after 14 consecutive rises, the ledning rate now " seemed close to what it needed to be given the current outlook". The new Fed' chariman has started his tentureship with some relatively hawkish speak, but this was expected, and the dollar has hardly moved over the last few days.

The Bank of England minutes released this morning were also broadly in line with expectations. The nine member panel of the Monetary Policy Committee voted 8-1 to keep rates unchanged, with the lone dissenter, Stephen Nickell voting for a cut for the third consecutive meeting. It had been rumoured that Kate Barker would join Nickell in voting for a cut.

The markets remains relatively unchanged, with some moderate sterling strength yesterday, bringing the inter-bank rate toward 1.4660.

GBP EUR - Support 1.4545 then 1.4500
Resistance 1.4670 then 1.4735

GBP USD - Support 1.7400 then 1.7315
Resistance 1.7490 then 1.7575

German GDP for the 4th quarter was surprisingly low, coming in flat against expectations for a 0.2% gain. This brings their unadjusted anual rate to 1.0% from the 1.4% estimated in Q3. Commentators suggest this will not force the ECB to curtail their monetary tightening intentions, since the Euro economy is seen as gathering momentum in Q1 2006.

UK Producer prices rose sharply in January (+1.8%) as oil and metals prices rose through the month of December. Oil price have since eased by around 10%.

Output prices also rose (+0.4%), suggesting that manufacturers are managing to pass on some of the rise in costs.

UK Core Price Index is at 09:30 this morning, with EMU Q4 GDP at 10:00, and US Retail Sales and Business Inventories at 13:30.

The Bank of England's Inflation Report on Wednesday is also likely to remain in focus for sterling today.

GBPEUR - Support 1.4600, 1.4530, 1.4500
Resistance 1.4660, 1.4735

GBPUSD - Support 1.7375, 1.7315
Resistance 1.7500 then 1.7575 (Friday's post data high)

Plenty of data today from both sides of the Atlantic, starting with UK December Trade Balance at 09:30, expected to show a deficit of £5.5bn versus November's £6bn. We then have the Bank of England accouncement at midday, which is almost certain to result in no change in interest rates. The minutes of the meeting will be released next week, and should provide further insight into the current thinking of the MPC.

This afternoon in the US the weekly Jobless Claims data is released at 13:30, with 285,000 expected. Wholesale Inventories at the same time.

Our major markets remains relatively unchaged from yesterday.

GBPEUR - Support 1.4535, 1.4500 then 1.4350
Resistance 1.4610, 1.4735

GBPUSD - Support 1.7400, 1.7315
Resistance 1.7512, 1.7800

As expected, no surprises....manufacturing up 0.3% on the month vs expectations of 0.1%, but down 0.8% on the year for 2005. The data will not have any effect on Q4 GDP estimate of 0.6% that surprised to the upside a couple of weeks ago.

Sterling continues to suffer versus the Euro and Dollar, and this morning's Industrial & Manufacturing Production data should give us a clear indication of whether the continued slide has been justified.

GBPEUR - Support 1.4535, 1.4500 then 1.4350
Resistance 1.4610, 1.4735

GBPUSD - Support 1.7400, 1.7315
Resistance 1.7512, 1.7800

28 out of 30 economists polled by AFX news expect the ECB to raise rates by a quarter point in March after last week's no change vote. Meanwhile, further speculation in the weekend press suggests that the UK will find it difficult to continue meeting growth expectations without a little help in the form of a rate cut in the next few months, so I am still sceptical over the rally in GBPEUR. The BOE are meeting on Thursday, and we're expecting another no change for now. However, data released on Wednesday including Industrial and Manufacturing production could affect the MPC decision.

The dollar rallied despite weaker than expected non-farm payroll data, and we are approaching important support levels on cable and EURUSD.

GBPEUR - Support 1.4600, 1.4500
Resistance 1.4735 1.4815

GBPUSD - Support 1.7550, 1.7512, 17400
Resistance 1.7640, 1.7715, 17800