Daily Insight

The Pound made significant gains against both the Euro and the Dollar yesterday and with the ECB interest rate announcement due at midday today, it looks increasingly likely that Euro buyers would be well advised to take advantage of the current rate. Sterling firmed up a further 0.4% against the Dollar yesterday and closed towards the yearly high at 1.4850 against the Euro amid the release of some surprisingly strong UK retail data. The Confederation of British Industry distributive trades survey came in much better than expected as consumers returned to the highstreet in August and the Pound has made gains on speculation that the Bank of England with have the room to raise UK interest rates once more this year. That sentiment was further emphasised in a report from the BoE on UK mortgage approvals, which rose to a six-month high in July with the number of home loans approved reaching 120,000. This suggests that growth in the UK housing market continues to flourish and the data released this morning has showed that house price inflation accelerated at the fastest pace in a year this month according to the Nationwide survey with the average cost of a home rising 6.6% from a year earlier. Elsewhere, the Pound may make further gains this morning with UK consumer confidence widely expected to mirror the CBI trades survey as a pickup in spending propels economic growth.

Without doubt, the focus today will fall on the ECB interest rate announcement and accompanying press conference. It is widely anticipated that the Central Bank will hold Euro-zone interest rates at 3.0% in September but the Euro may stage a recovery against the Pound if the Chairman, Jean-Claude Trichet, signals a further tightening of rates in October. Usually, policy makers within the ECB give the market notice of a rate hike a month prior to the announcement and the sort of language used in the statement will become evermore significant with the term "vigilant" used as a trigger for an impending rise in interest rates. Therefore, it looks increasingly likely that Euro buyers would be well placed to take advantage of the current rate as a correction in the market looks imminent particularly if we get a good indication today that a rise in rates is likely over the coming months. In addition, there is some significant economic data released this morning that could add weight to calls for higher interest rates in the 12 nations sharing the Euro with the Flash Consumer Price Index expected to ease slightly in August from an annual rate of 2.4% last month. Elsewhere, a report of Gross Domestic Product may increase significantly in the second quarter with forecasters anticipating that economic growth accelerated to 0.9% with the core rate up 2.4% from 2.0% in the first quarter.

The Dollar came under further pressure yesterday amid a soft report on U.S economic growth in the second quarter. The revised estimate for GDP increased to an annual rate of 2.9%, which was slightly ahead of expectations but may point to slowing growth over the coming months. Significantly higher interest rates and rising energy prices have had a devastating effect on the U.S housing market and personal spending, which accounts for a large proportion of the economy, is expected to weaken further this year, fuelling speculation that the Federal Reserve won't raise interest rates again in order to prevent the economy from overheating. However, a report this afternoon on U.S personal income and expenditure, the Fed's preferred measure of U.S inflation, is widely expected to show that consumer spending in the States rose by the most on six months in July as a rise in personal income supplements near-record petrol prices. Spending accounts for two thirds of the U.S economy and economists estimate that a significant drop may slow economic growth to a degree that the Federal Reserve will be able to keep interest rates on hold. However, the report this afternoon may give the Dollar a reprieve as Personal income is expected to rise by 0.8% in July from 0.4% in June.

Data Released 31st August

UK 10:00 Consumer Confidence (August)

GER 08:55 Unemployment (August)

EU 10:00 Flash Consumer Price Index (August)
EU 10:00 Gross Domestic Product (Q2)
EU 10:00 EC Economic Sentiment (August)
EU 12:45 ECB Interest Announcement & Press Conference at 13:30

U.S 13:30 Initial Jobless Claims (w / e 26th August)
U.S 13:30 Personal Income & Expenditure (July)
U.S 15:00 Factory Goods Orders (July)
U.S 15:00 Chicago PMI (August)

written by Adam Solomon

The Dollar came under increased pressure yesterday amid the release of some soft consumer sentiment data, which showed that confidence in the U.S had dropped to a nine-month low in August following a dramatic slowdown in the housing market and concerns over rising energy prices that in turn have a negative impact on job prospects as employers attempt to curb spending. The index fell by more than expected this month to a reading of 99.6 from 107.0 in July, the biggest single decline since the devastation caused by Hurricane Katrina last year. However, the Dollar reacted curiously against the Pound, strengthening towards 1.8900 as the survey also pointed to higher inflation concerns among the American consumer. Inflation expectations over the next year rose to 5.5%, up from 5.1% last month and the gauge will prompt speculation that the Federal Reserve may raise interest rates once more before the turn of the year. Although, the relative appetite for the Dollar was short-lived as the minutes from the Fed's last policy meeting were released yesterday evening, signalling that a further tightening of monetary policy was unlikely this year as the slowdown in economic growth eases inflation. In addition, Fed policy makers also suggested that the current lending rate of 5.25% was "consistent with satisfactory economic performance", which indicates a further rise in interest rates could 'over-heat' the economy.

There is some significant economic data released this afternoon in the States that could potentially drive the Dollar with the release of the ADP Employment report for the month of August, which is widely expected to show a rise from 99,000 in July to 115,000 this month and should provide an insight into the monthly job report on Friday. Elsewhere, the revised GDP estimate for the second quarter will provide an indication of economic growth in the States and forecasters are anticipating an increase to 3.1% from 2.5% in the first quarter, while the annual growth rate may stay unchanged at 3.3%. However, if economic growth has moderated by more than expected then we can expect the Dollar to come under pressure against the majors as speculation will intensify that the next move for the Fed will be a cut in rates.

There was a sparse supply of economic factors in the Euro-zone yesterday with the focus falling on German consumer confidence, which increased to a near five-year high in August. The Euro also received a boost ahead of the interest rate announcement tomorrow on speculation that the ECB chairman, Jean-Claude Trichet, will signal a further rise in rates in October while the Fed and the BoE hold their benchmark rate steady. It is widely anticipated that the Central Bank will keep rates on hold at 3.0% tomorrow following a rise earlier this month but we can expect the Euro to make further gains against the Pound if Trichet maintains his hawkish stance towards a further tightening of monetary policy before the end of the year.

The Pound has been gaining over the past week as economic growth continues to show signs of accelerating while house prices have also increased this month indicating that the Bank of England will have the scope to raise interest rates further following the surprise move in August. Despite a lack of fundamental data released, Sterling has made significant gains against the Dollar in the past 24hrs as comments from Gordon Brown have seemingly boosted growth expectations. The Chancellor's belief that UK economic growth will come in ahead of the Treasury's forecast this year has increased speculation that the BoE will need to lift interest rates again over the coming months with the next meeting scheduled for early September. There is some significant data released in the UK this morning including the CBI Distributive Trades survey, which provides an indication of short-term trends in the UK retail sector with forecasters anticipating a modest drop in August, while UK mortgage approvals may ease slightly in August fro 120,000 last month.

Data Released 30th August

UK 09:30 Mortgage Approvals (July)
UK 11:00 CBI Distributive Trades Survey (August)

U.S 13:15 ADP Employment Report (August)
U.S 13:30 GDP / Deflator (Q2 Revised)

written by Adam Solomon

Following on from last week, the Pound received an unexpected boost on Friday as economic growth in the second quarter came in largely in line with expectations although personal consumption increased by 1.0%, which was slightly more than expected and provides an indication that the UK consumer remains in relatively good health despite this month's surprise increase in interest rates. UK markets were closed yesterday following the Summer Bank Holiday but there was some significant data released in the form of the Hometrack House Price index, which showed that prices rose 0.4% in August, pushing the annual rate to 3.9% from 3.2% in July. The focus this week in terms of economic data released will be UK consumer confidence on Thursday and the CBI Distributive Trades Balance tomorrow. Both of which are widely expected to show growth in the personal sector and may provide scope for the Bank of England to continue raising UK interest rates as the economy continues to show signs of growth.

There is a plethora of significant economic data released in the Euro-zone this week including the ECB interest rate announcement and press conference on Thursday where the Central Bank are widely expected to hold interest rates at 3.0% following a 0.25% increase earlier this month. However, the market will be looking at the accompanying press conference for evidence of a "vigilant" economy, a term the chairman of the Central Bank has commonly used to signal a further rise in rates the following month. There was some economic data released in the Euro-region yesterday with the three month moving average of the M3 money supply rising to 8.3% in July, which was slightly less than expected although the reading is still well above the Central Bank's target of 4.5%. Therefore, the ECB are likely to continue raising interest rates over the coming months in order to cool borrowing and reduce inflationary pressures. There has already been some significant data released in Germany this morning with Consumer Confidence rising to the highest level in almost five-years as the prospect of a sales tax increase next year has a positive effect on household spending in the last month.

The Dollar may come under increased pressure against the majors this week in light of a full calendar of economic data as the market looks for further evidence of a slowing economy. The focus this week will fall on the Nonfarm Payrolls report this Friday, which is widely expected to show that the U.S economy added a modest 125,000 jobs in August while the unemployment rate is expected to drop slightly to 4.7%. Elsewhere, the Dollar may be hampered further in light of the Personal income and expenditure report, which is the Fed's preferred measure for U.S inflation and forecasters are anticipating a modest rise in August while the PCE Deflator may be unchanged at 0.2%. There is some significant data released this afternoon in the States with consumer confidence expected to drop to a reading 104.0 in August as higher interest rates and rising oil prices have a negative impact on consumer sentiment. In addition, this evening will see the release of the minutes from the Fed's last policy meeting, which should provide an insight as to why the Federal Reserve elected to hold interest rates at 5.25% following a prolonged campaign of 17-consecutive rate hikes over a two-year period.

Data Released 29th August

U.S 15:00 Consumer Confidence (August)

U.S 19:00 FOMC Minutes of 8th August Meeting

written by Adam Solomon

The Euro made significant gains against the Pound yesterday amid the release of the Ifo index, which showed that business confidence in Germany exceeded expectations this month, which has revived speculation that the ECB will lift interest rates twice more this year. The index fell to a reading of 105 in August, which was a smaller decline that forecast with the market anticipating a sharper fall following the collapse of the ZEW survey on investor confidence in the region. The Euro has strengthened by 8.2% against the Dollar this year alone on expectations that the ECB will outpace the Federal Reserve in raising interest rates this year. Therefore, Euro buyers would be well advised to take advantage of the current rate against the Pound with the market looking increasingly overbought, we can expect a correction to take place at some stage, particularly if the ECB decide to lift interest rates in September. However, following the collapse of the ZEW survey, it does look increasingly likely that higher taxes, rising interest rates and slowing global growth will hamper economic expansion in the fourth quarter and may prompt the Central Bank to adopt a more cautious approach to monetary tightening.

The Pound remained relatively unchanged against the Dollar yesterday, firming a further 0.1% at close although we have traded back under 1.8900 this morning. There has been a real sparse supply of economic data released in the UK but the focus this week will fall on the GDP report this morning with the revised estimate expected to confirm economic growth at 0.8% in the second quarter. However, if the report exceeds expectations with economic growth accelerating faster than anticipated, we can expect Sterling to strengthen significantly against the majors as speculation will intensify that the Bank of England may raise interest rates again in order to bring inflation back under control.

The Dollar has looked increasingly volatile this week and that trend continued yesterday following a better than expected report on U.S Durable Goods Orders, which showed that parts of the economy continue to show signs of growth. Excluding transport, capital goods orders increased by 0.5% in July, which was more than anticipated and suggests that corporate investment will help spur economic growth as the housing and consumer sectors show signs of slowing. In addition, the weekly report on jobless claims showed that the number of people out of work and claiming benefits actually fell by 1,000 in the week ending August 19th, which provides an insight into the U.S labour market as steady job gains and rising wages may encourage consumers to carry on spending. However, the Dollar came under pressure yesterday following a report on the U.S housing market as the sales of new homes mirrored the previous report earlier this week, dropping by more than forecast at 4.3% to an annual rate of 1.072 million.

Data Released 25th August

UK 09:30 GDP (Q2 Revised)

written by Adam Solomon

The Euro has been in rapid decline this week following the release of the ZEW index for investor confidence in Germany, which fell for the seventh consecutive month and to the lowest level in 5-years in the month of August. Therefore, the Ifo index, which measures business confidence in Europe's largest economy, will take on added significance this morning with forecasters anticipating a further drop in confidence with a reading 104.8 expected following a modest decline of 105.6 in July. Therefore, the Euro may come under pressure if the index has fallen by more than predicted but it should remain at elevated levels indicating that growth in the German economy continues to accelerate. There is a host of significant data released in the Euro-zone this morning including the Ifo index with German construction spending surging forward by the most in over 10-years in the second quarter, which will undoubtedly spur economic growth. While elsewhere, Gross Domestic Product, the value of all goods and services, expanded by 0.9% in the second quarter, which provides further evidence that growth in Europe's largest economy will provoke a further rise in Euro-zone interest rates.

The Pound has enjoyed a decent rally against the majors this week despite the apparent lack of significant economic data released in the UK and that trend continued yesterday with Sterling strengthening by 0.2% against the Dollar and a further 0.3% versus the Euro. The positive sentiment surrounding the Pound stemmed from an unexpectedly strong CBI industrial trends survey, which showed that new orders have increased to a 20-month high in August, suggesting that production and manufacturing output continue to show signs of growth in the third quarter. The survey has highlighted renewed inflation concerns and may prompt speculation that the BoE will need to raise UK interest rates for the second time this year.

The volatility surrounding the U.S Dollar increased yesterday amid the release of a report on the sales of existing homes in the States, which provided a further indication that the Fed's aggressive tightening of U.S interest rates has dramatically cooled the housing market. Sales of previously owned homes fell by 4.1% in July, which was far more than expected as higher mortgage rates discourage buyers, resulting in the biggest amount of unsold homes on the market in more than a decade. The Dollar declined on the release of the data as sales fell to an annual rate of 6.33 million, which represents the lowest total since January 2004. However, by the close of trading last night we had retraced much of the gains as investor's seemed divided on whether the Federal Reserve will lift interest rates next month as house prices continue to rise despite the influx of properties on the market. There is a host of significant economic data released in the States this afternoon with Durable Goods Orders widely expected to increase by 0.2% in July while elsewhere, a further report on the U.S housing market may show that sales of new homes slumped to an annual rate of 1.11 million following a modest drop in June.

Data Released 24th August

GER 10:00 IFO Index (August)

U.S 13:30 Durable Goods Orders (July)
U.S 13:00 Initial Jobless Claims (w/e 19th August)
U.S 15:00 New Home Sales (July)

written by Adam Solomon

The Euro came under sustained pressure yesterday, dropping by a further 0.4% against the Pound and falling from a two-week high versus the Dollar. The negative sentiment surrounding the Euro can be attributed to a report from the ZEW centre of economic research, which showed that German investor confidence dropped to lowest level in over 5-years in August, primarily due to a sharp rise in borrowing costs and next year's VAT rise in Germany, which threatens to undermine growth. The ZEW index dropped significantly from a reading of 15.1 in July to 5.6 this month and this is the seventh consecutive fall, which emphasis that business confidence may be severely muted over the coming months as oil prices continue to rise while Euro-zone interest rates are poised to increase further from the current 3.0%. As a result, the Euro declined by 0.6% against the Dollar and we closed well above 1.4700 versus the Pound last night. However, the European Central Bank are still widely expected to raise Euro-zone interest rates in the next month as inflation continues to accelerate almost half a percentage point above the Bank's target. Therefore, we can still expect the Euro to make gains over the coming months and Euro buyers would be well advised to take advantage of the current rate.

The Pound has been in rapid decline over the past week, due to a string of poor economic data, which has undermined expectations that the Bank of England will enter a new cycle of interest rate rises. However, Sterling was given a reprieve yesterday, particularly against the Euro, following a disappointing report on investor confidence in Germany. There is a sparse supply of fundamental UK data released this week but the focus this morning will fall on the CBI Industrial Trends survey for August with forecasters anticipating a modest drop in business expectations and new orders this month. The Pound also received a boost from comments from the ECB council member Axel Weber who hinted at the reallocation of Germany's reserves from gold into foreign currencies with Sterling a realistic candidate for inclusion in their foreign exchange reserves.

The Dollar has remained relatively unchanged in the past 24hrs due to a sparse supply of U.S data released, although we have seen some upside movement versus the Euro and the Japanese Yen. U.S economic growth seems to be moderating according to the recent surveys on consumer and business sentiment, which has dramatically shifted expectations that the Fed will not raise interest rates again this year. Therefore, the report on the U.S housing market this afternoon will take on added significance with forecasters anticipating a further a drop in the sales of existing homes in the last month with the annual rate falling to $6.50 million. The collapse in the U.S housing market this year can be attributed to significantly higher interest rates as the Fed's two year campaign has seen rates peak at 5.25%, which makes mortgages far more unattractive for first time buyers.

Data Released 23rd August

UK 11:00 CBI Industrial Trends Survey (August)

U.S 15:00 Existing Home Sales (July)

written by Adam Solomon

The Pound made significant gains against the majors yesterday, firming 0.8% versus the U.S Dollar and a further 0.3% against the Euro after slumping to a two week low in the midst of some poor economic data, which has severely muted claims that the Bank of England will enter a sustained period of monetary tightening. There is a sparse supply of fundamental news flow this week both in Europe and the UK but the Pound shrugged off some poor housing data yesterday to close around 1.4700 versus the Euro. The Rightmove House Price indicator unexpectedly declined 1.6% this month from 2.9% in July while the annual rate fell towards 9.0%. The survey suggested that the apparent slowdown in the housing market was a result of seasonal factors but also indicated that prices may of peaked for 2006 as buyers become concerned with increased borrowing costs leading to higher mortgage rates. The key economic data released this week in the UK will be the CBI industrial trends survey tomorrow and the second quarter GDP report due out on Friday, both of which are expected to show that economic growth has continued to accelerate in the second quarter.

The Euro has made significant gains in the past week as speculation intensifies that the ECB will increase the pace of monetary tightening in the Euro-zone as economic growth continues to accelerate from the six-year high in the second quarter. Therefore, the Euro-zone economy is seen as growing at a pace that would sustain a further two rate rises this year and we can therefore expect the Euro to make further gains against the majors over the coming months. However, there is some significant data released in the Euro-zone this morning with German investor confidence widely expected to fall to the lowest level in almost four years on concerns that higher interest rates will hamper economic expansion in Europe's largest economy. The ZEW survey for investor confidence may have dropped to a reading of 11.4 in August, which is the lowest level since December 2002. The Euro may come under further pressure if Industrial activity in the Euro-zone has increased by less than anticipated with orders expected to increase by upto 0.4% in June.

The U.S Dollar suffered sharp losses against the majors yesterday despite an apparent lack of any fundamental data released in the States but the negative sentiment surrounding the Dollar can be attributed to a delayed reaction to a string of poor economic data in the last week. As a result, U.S interest rates expectations have been severely muted for the coming months as inflation moderates while economic growth continues to show signs of slowing into the third quarter. In addition, Industrial Production and manufacturing output has also come in weaker than expected in the past month while rising petrol prices and significantly higher interest rates are beginning to weigh heavily on consumer sentiment. The Dollar declined by 0.7% against the Euro yesterday, dropping to an 11-week low at 1.2900 and with a distinct lack of economic data released until Wednesday with existing home sales, we can expect the Dollar to remain fairly muted against both Sterling and the Euro.

Data Released 22nd August

EU 10:00 Industrial Orders (June)

GER 10:00 ZEW Expectations Balance (August)

written by Adam Solomon

Following on from last week, the Dollar has come under increased pressure amid the release of the University of Michigan's Preliminary index for U.S consumer sentiment on Friday, which showed that confidence unexpectedly dropped in July despite significantly higher petrol prices. The index fell to a reading of 78.7 last month, which was well below forecasts and the lowest level since October last year. The Dollar weakened against the Pound and the Euro as speculation continues to gather momentum that the Federal Reserve have finished their two-year campaign in raising U.S interest rates and will again look to hold at 5.25% next month. Last week, several indices indicated that economic growth in the States will moderate in the third quarter while inflation looks to have peaked, which provides the clearest indication yet that the Fed won't need to continue raising rate beyond the current level. The Dollar has declined against the Euro this morning on the assumption that higher interest rates are having a negative impact on economic activity and in the data released this week, the U.S housing market may continue to show signs of cooling as we approach a two-year low on home sales while elsewhere, durable goods orders are widely expected to drop by upto 0.5% in July.

The Euro has rebounded sharply against the Pound in the last week as we continue to trade down from the year high at 1.4850 as economic growth in the Euro region accelerates to a six year high last month while the annual inflation rate also looks to be increasing, which should prompt the ECB to lift interest rates beyond the current 3.0%. However, the Euro may come under pressure this week on the news that German business and investor confidence fell in the surveys for August while the Provisional estimate for GDP in the second quarter may show that growth in Europe's largest economy continues to expand. The Ifo Index, which analyses business confidence in Germany, is widely expected to show further signs of cooling in August after reaching a 15-year high in June. Elsewhere, the ZEW survey for economic sentiment may show signs of robust growth in July following an unexpected drop the previous month.

The Pound has rallied furiously since the Bank of England unexpectedly decided to lift UK interest rates this month but following a week of soft economic data, expectations have dramatically shifted on whether the BoE will enter a sustained cycle of monetary tightening. Factory-gate and High street inflation showed signs of moderating in July, dropping towards an annual rate of 2.4% while UK unemployment surged to a six year high will the number of people out of work jumping by 3,000 on the month. In addition, the minutes from the BoE's last policy meeting seemed to suggest that this months decision to raise rates was merely a measure to contain inflation and the language used was particularly negative in relation to a further tightening of rates in the coming months. There is a sparse supply of economic factors that could potentially drive the Pound this week with the CBI industrial trends survey released tomorrow and the general consensus is for a modest drop in business expectations and growth in new orders. The focus this week will fall on UK GDP data in the second quarter after the initial estimate showed economic growth at 0.8% while elsewhere, Consumer spending is widely expected to increase by 0.7% in July, which would be in stark contrast to the drop in retail sales we saw last week.

Data Released 21st August

UK 09:00 Rightmove House Prices

written by Adam Solomon

The Pound has come under increased pressure towards the latter part of this week and fell a further 0.3% versus the Euro yesterday, to close under 1.4700 for the first time in nearly a month. Therefore, Euro buyers would be well advised to take advantage of the current market rate because as speculation continues to grow that the BoE will not enter a sustained cycle of monetary tightening, we can expect the Euro to make further gains. Since the Bank of England decided to lift interest rates for the first time in 14-months, there has been a string of poor economic data that hasn't supported a further rate rise over the coming months. This week, Factory-gate and high street inflation has showed signs of moderating in July while UK unemployment has hit a six-year high with the number of people out of work jumping by 3,000 on the month. The negative sentiment surrounding the Pound continued yesterday as UK Retail Sales fell for the first time in six months in July with sales dropping 0.3%. Consumer Spending represents two thirds of the UK economy and the recent rise in confidence would of been one of the primary reasons for the Bank of England to lift interest rates this month. Sterling may decline further against the majors this morning on the release of PSNCR index, which records the amount of money the government has to borrow to meet its expenditure.

The Euro made significant gains against the Pound yesterday despite a host a soft economic data, which has provoked suspicion that the ECB won't be as aggressive towards monetary tightening as previously thought. Economic growth in the Euro-zone hit a six year high in the second quarter but the inflation data yesterday showed that the Harmonised Index of consumer prices fell 0.1% in July to take the annual inflation rate down to 2.4%, which was slightly under forecasts of 2.5%. In addition, Euro-zone Industrial Production came in weaker than expected for the month of June, dropping 0.1% versus expectations that output would remain unchanged from May. The Euro may make further gains this morning if the EU Trade Balance shows that the deficit in goods and services unexpectedly narrowed in June.

The Dollar also made gains against the Pound yesterday, firming 0.2% to open this morning under 1.8900. Following a weaker than expected report of U.S leading economic indicators, the Dollar bounced back in the wake of the Philadelphia Fed Index, which analyses growth in manufacturing in the region. The index was widely expected to show a reading slightly above 6.0 in August but according to the Federal Reserve Bank in Philadelphia, the region's manufacturing sector expanded to a reading of 18.5 this month led by a sharp rise in new orders and shipment components. The Dollar has been under increased pressure of late as economic growth looks to moderate in the States while inflation seems to be slowing following the Fed's prolonged campaign in lifting interest rates 17-months in succession. There is some significant data released this afternoon with U.S consumer confidence widely expected to decline further in August for the fourth in five as the housing market continues to show signs of cooling while higher petrol prices are weighing on consumer sentiment.

Data Released 18th August

UK 09:30 PSNCR (July)

EU 10:00 Trade Balance (June)

U.S 14:45 Michigan Sentiment (August Prelim)

written by Adam Solomon

The Pound dropped 0.2% against the Euro yesterday to close well under 1.4800 following the release of the minutes from the MPC's last interest rate announcement where policy makers elected to raise UK interest rates for the first time in 14-months. The committee voted 6-1 in favour of lifting rates in August with the market anticipating a unanimous decision and the minutes also indicated that the Bank of England would not enter a new cycle of monetary tightening as was widely expected. UK inflation has moderated slightly to 2.4% in the last month, which is still well above the government's comfort zone and therefore fuelled speculation that a further rate increase was needed. However, the language used in the accompanying statement yesterday indicated that policy makers would be prepared to reverse the decision to hike rates in August and the move would lessen the need for more aggressive action later. The Pound came under further pressure when a report on UK unemployment showed that the number of people out of work increased by 2,000 in July to 957,000, the most since January 2002, while UK average earnings increased by more than expected as consumers demand higher wages to cope with rising energy costs. The focus today in terms of economic data released will be UK retail sales for July and forecasters are anticipating a further increase of 0.2% from June.

The Euro made gains against the majors yesterday despite a sparse supply of economic factors driving the single currency. Instead, the Euro reacted to some soft inflation data in the States to climb 0.6% versus the Dollar, while also firming against the Pound amid the release of the minutes from the Bank of England. There is some significant data released this morning in the Euro-zone with the Harmonised Index of Consumer Prices (HICP) widely expected to confirm an annual inflation rate of 2.5% in the Euro region. Elsewhere, the Euro may come under pressure with Industrial Production data expected to show that activity dropped by 0.1% in June.

The Dollar slipped against the Euro and the Pound yesterday as we briefly traded back above 1.9000 for the first time this week. The weakness came from a softer than expected inflation report, which showed that prices charged for U.S consumer products increased by the smallest amount since February this year. Core prices, which excludes food and energy, only increased by 0.2% from June and it looks increasingly likely that U.S interest rates have now peaked at the current 5.25%. With inflation moderating and economic growth seemingly slowing in the third quarter, the market has factored in a less than 50 per cent chance that the Fed will raise U.S interest rates again this year. The Dollar came under further pressure yesterday after a report showed that industrial production had unexpectedly declined in the figures for July, while elsewhere, Housing starts dropped to the lowest level in nearly two years to an annual rate of 1.795 million as higher mortgage rates discouraged first time buyers. The focus in terms of data released will fall on the Philly Fed Index, which analyses manufacturing conditions in the Philadelphia region and forecasters are anticipating a stung reading for July.

Data Released 17th August

UK 09:30 Retail Sales (July)

EU 10:00 HICP (July)
EU 10:00 Industrial Production (June)

U.S 13:30 Initial Jobless Claims (w/e 12th August)
U.S 15:00 Leading Indicators (July)
U.S 17:00 Philly Fed Index (August)

written by Adam Solomon

The Pound came under some pressure in early trading yesterday following the release of July's Consumer Price Index, which indicated that UK inflation had moderated slightly in the last month. Prices dropped by 0.1% from June with the annual inflation rate falling back towards 2.4% and speculation that the Bank of England will continue raising UK interest rates may be a touch premature. However, the governor of the BoE, Mervyn King, has issued a statement earlier this month where he concluded that UK inflation may peak at 3.0% by the end of the year. Therefore, the market may still anticipate another rate hike and with factory gate inflation rising for a seventh month in succession and UK house prices breaching a two year high in July, the Bank certainly have scope to continue raising rates from the current 4.75%. The focus today will fall heavily on the release of the minutes from the Bank of England's last policy meeting, which will take on added significance following the soft inflation data yesterday. The minutes will provide an insight into the reasons behind the MPC's decision to lift UK rates this month and the Pound may given a boost should the statement indicate a further rate rise to come. In addition, there is also some significant economic data released this morning with UK unemployment widely expected to remain relatively unchanged from June where the number of people out of work fell from a three-year high.

The Euro has been relatively muted this week despite economic growth in the Euro-zone jumping to a six-year high in the second quarter. The ECB look set to continue raising interest rates beyond the current 3.0% as economic growth continues to accelerate. There has been a sparse supply of significant data released this week in the region but with speculation building that Euro-zone interest rates will continue to rise, we can expect the Euro to strengthen against the majors over the coming months.

The Dollar declined against the Pound and the Euro yesterday following the release of the July Producer Price Index, which provides a measure of factory-gate inflation in the States, with prices increasing just 0.1% in July. However, the Core rate excluding food and energy unexpectedly dropped by 0.3% from the previous month, which indicates that the Federal Reserve were right in holding interest rates in August as economic growth begins to moderate in the third quarter. In addition, the Empire State Manufacturing survey showed that growth in the sector accelerated at the slowest pace in more than a year with the index dropping to a reading of 10.3 this month from 16.6 in July. The Dollar fell by 0.6% versus the Euro and a further 0.3% against the Pound by the close of trading last night and with the Consumer Price Index released this afternoon, the Dollar may come under further pressure particularly if U.S inflation has scaled back from 2.6% last month.

Data Released 16th August

UK 09:30 MPC Minutes of 2/3 August meeting
UK 09:30 Unemployment (July)
UK 09:30 Average Earnings (3 months to June)

U.S 13:30 Consumer Price Index (July)
- Ex Food & Energy
U.S 14:15 Industrial Production (July)
U.S 14:15 Capacity Utilisation (July)

written by Adam Solomon

The Pound held firm against the Dollar and the Euro yesterday despite a report on Producer Prices, which suggested that UK manufacturers had more scope to pass on higher commodity prices to the consumer. The Bank of England lifted interest rates for the first time in over a year in August in order to bring inflation back under control as economic growth continues to accelerate and the report yesterday may dampen expectations of a further tightening of interest rates in the coming months. Input producer prices rose significantly higher that forecast with year-on-year growth up to 9.7% but annual output prices held steady at 2.8% with the core measure dropping by more than expected at 0.1%. With a host of significant economic data released this week in the UK, we can expect further market volatility surrounding the Pound. This focus this morning will fall on the Consumer Price Index for July, which provides another gauge for UK inflation, and is widely expected to mirror the dovish sentiment of the PPI with forecasters anticipating a modest drop towards 2.4% last month. However, this is still well above the Central Bank's comfort zone and may prompt the MPC to hike UK interest rates once more this year.

The Euro remained relatively unchanged yesterday despite some positive economic data released in the Euro-zone with the Flash GDP report showing that growth in the economy accelerated at the fastest pace in six years in the second quarter, which will fuel speculation that the ECB will need to lift interest rates from the current 3.0%. Growth in the economy outpaced the U.S for the first time since 2001 in the second quarter and it is widely anticipated that the European economy will continue to expand for the remainder of this year, primarily due to higher borrowing costs and rising oil prices. It seems certain that the ECB will need to continue raising interest rates this year with the data showing robust gains in Business and Consumer confidence and the manufacturing and service sectors have hit six year highs in the last quarter. Elsewhere, economic growth in Germany, Europe's largest economy, accelerated faster than expected in the figures released yesterday with growth in France and Spain also exceeding expectations.

The Dollar has been boosted in the last week from a report on U.S Retail Sales last Friday, which showed robust gains in July, indicating that the Federal Reserve may need to continue raising borrowing costs after holding still at 5.25% this month. There is some significant inflation data released in the States this week that may shift interest rate expectations in September with the market currently factoring in only a 36 per cent chance of a rate hike in September. The Producer Price Index, released this afternoon in the States, is widely expected to show that prices increased by 0.4% in July excluding Food and Energy. This suggests that U.S inflation has continued to accelerate despite the Fed's aggressive policy towards raising interest rates and tomorrow's CPI will take on added significance with the year-on-year core rate up to 2.8% from 2.6% in June. In addition, the TIC's report this afternoon could give the Dollar a boost with net capital inflows widely expected to increase in June and will be sufficient in covering the ever-widening U.S trade deficit.

Data Released 15th August

UK 09:30 Consumer Price Index (July)

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

U.S 13:30 Empire State Index (August)
U.S 14:00 TIC's - Net Capital Inflows (June)

written by Adam Solomon
written by Adam Solomon

Following on from last week, the Dollar managed to make back further gains against the Pound on Friday following a string of significant economic and inflation data, which suggested that the Federal Reserve may need to continue raising interest rates following a pause at 5.25% early last week. U.S Retail Sales rose by more than expected in July, jumping by 1.4% following a rise in the purchases of autos and electronics and that suggests that rising petrol prices and higher interest rates are not having the negative impact on consumer sentiment that was anticipated. As a result, the Dollar held firm around 1.8900 versus the Pound and there is a plethora of significant inflation data released in the States this week, which should provide some direction as to whether the Fed will continue monetary tightening. The Consumer Price Index, released this Wednesday, is widely expected to show that prices increased in July with the annual core rate rising to 2.8% and with an increase in the PPI also anticipated, speculation will intensify that the Fed will need to continue raising interest rates in order to bring inflation under control.

The Pound has continued to look strong despite a sparse supply of economic data released in the past week and the terrorist alert at major UK airlines, which put Sterling under some pressure against the majors. The focus this week will fall on the minutes of the Bank of England's last policy meeting where the MPC unexpectedly raised UK interest rates by a quarter-point for the first time in more than a year. It is widely anticipated that the committee voted 7-0 in favour of hiking rates this month and the statement may provide some insight into the Bank's intention to continue monetary tightening as inflation continues to grow beyond the government's comfort zone. Therefore, the Consumer Price Index, which provides a measure of UK inflation, will take on added significance in the data released tomorrow and forecasters are anticipating a modest decline in July with inflation falling back towards 2.4% from 2.5% in June. There is some significant data released today in the UK with the Producer Price Index expected to show that input prices increased dramatically in July, rising by 0.9% from the previous month.

The Euro continues to struggle against the Pound as we closed around 1.4850 on Friday despite the apparent growth in the French and Italian GDP reports, which suggests that growth in the Euro-zone economy will continue to accelerate. This market is looking increasingly 'over-bought' and Euro buyers would be well advised to take advantage of these inflated rates as a correction is due to take place at some point with speculation continuing to drive expectations of higher interest rates in the coming months. There is some significant economic data released in the Euro-zone this morning with the Flash GDP report expected to show that growth in the economy accelerated by 0.7% in the second quarter, while elsewhere, growth in Germany may have increased by 0.4%, which provides further evidence that the ECB will need to raise interest rates beyond the current 3.0% to cope with the threat of rising inflation and faster economic growth.

Data Released 14th August

UK 09:30 Producer Price Index (July)
UK 09:30 ODPM House Prices (June)

EU 10:00 Flash GDP (Q2)

written by Adam Solomon

The Pound came under pressure early yesterday following reports that police had foiled a terrorist plot to blow up a UK airline. The authorities raised the alert status to 'critical' after unveiling a plot to blow up several UK airlines heading for the States. The currency markets reacted to the news as traders sought relative safe havens in the U.S Dollar and the Swiss Franc with Sterling falling by the most in nearly two weeks. However, by the close of the session the Pound sat relatively unchanged versus the Euro as we continue to hold firm around 1.4800. There is a sparse supply of economic data released in the UK for the remainder of the week and we can expect the market to focus on geopolitical issues such as the continued unrest in Lebanon and the terrorist threat at home.

The Euro has been steadily gaining against the Dollar this week as we approach the significant barrier at 1.3000. Although the Euro also came under pressure yesterday following the foiled terrorist attack in the UK, there was some positive economic news for the single currency as the ECB monthly bulletin suggested that Euro-zone interest rates were still at a 'low' level, indicating that further monetary tightening would be necessary. In addition, the year-on-year growth in French Industrial Production grew at 3.3%, which provides a measure of economic growth in the second quarter. There has already been some significant inflation data released in Europe this morning as reports showed that the French economy grew at the fastest pace in 5-years in the second quarter and it now looks increasingly likely that faster growth will point to higher interest rates in the coming months.

The Dollar staged a seemingly unlikely rally yesterday in the wake of the U.S Trade Deficit narrowing by slightly more than expected to $64.8 Billion in June as exports rose to the highest level ever recorded helped by accelerating economic growth in Europe and Japan and a weaker Dollar. Elsewhere, the weekly jobless report, which provides an indication of growth in the labour market, showed that the number of people out of work and claiming benefits actually rose to 319,000 with 7,000 new claims in the last week. However, the Dollar's move came after the release of the data and from a technical point of view, we tested the major support level at 1.8980 on three separate occasions and the third time we broke through to trade under 1.8900 before closing well above that level. The focus today in terms of economic data released will be Retail Sales in the States and the consensus forecast is for an increase of 0.9% in July as higher petrol prices gave a significant boost to sales.

Data Released 11th August

U.S 13:30 Retail Sales (July)
- Core Retail Sales

U.S 13:30 Business Inventories (June)

U.S 13:30 Import Prices (July)
- Export Prices

written by Adam Solomon

The Pound may come under severe pressure today as the national alert was raised to 'critical' following a foiled plot to blow up a UK airline. Sterling fell by the most in two weeks and those of you buying either euros or dollars may be well advised to go to market sooner rather than later. The Pound dipped against the Euro yesterday as we dropped under 1.4800 for the first time in little under a week as the UK trade deficit narrowed by less than expected in June. The shortfall in goods and services widened to £6.8 Billion in May, which was the biggest increase since February and fuelled concerns that UK exports would be insufficient in fuelling economic growth this year. The consensus forecast was for a slight improvement in trade for the month of June but in a climate of rising interest rates and higher energy costs, it seems a strong pound will further hamper UK exports in the second half of 2006. The focus yesterday turned to the Bank of England's quarterly inflation report, which showed that growth in the economy will continue to accelerate with inflation peaking at 2.7% by the end of the year. This is well beyond the government's comfort zone and speculation will intensify that this month's surprise rate hike will be repeated in the coming months as the BoE attempts to bring inflation back under control. However, the surprising hawkish tone of the report failed to boost the Pound as we dropped by 0.4% versus the Euro at the close last night.

The Euro made gains against Sterling and the Dollar yesterday despite the apparent lack of any significant economic data in the Euro-zone. However, the ECB monthly bulletin is widely expected to mirror the tone of the press conference last week where the chairman, Jean-Claude Trichet, said that a further tightening of interest rates may be warranted in the coming months. Crucially, the language used in the statement wasn't as aggressive towards raising interest rates as in previous months with Trichet dropping the word 'vigilant' from the statement, a term the market has come to associate as a signal for a future rate increase. Therefore, the monthly bulletin this morning will take on added significance and may provide some direction on the Central Bank's stance with regard a further rise in Euro-zone interest rates.

The Dollar remained relatively unchanged against the Pound yesterday, holding firm above 1.9000 as U.S wholesale inventories rose by 0.8% June, which was slightly ahead of expectations following a revised 0.9% gain in May and it seems that rising petrol prices and higher interest rates are not having a damaging effect on consumer demand as sales increased by 1.4%. The monthly U.S Trade Balance is actually released this afternoon in the States with forecasters anticipating that the deficit probably grew to $64.0 Billion in June. The Dollar may come under pressure if the gap in goods and services actually increased by more than anticipated, while the weekly jobless report will provide an indication of the relative strength of the U.S labour market after the unemployment rate rose to 4.8% in July.

Data Released 10th August

EU 09:00 ECB Monthly Bulletin

U.S 13:30 Weekly Jobless Claims w/e 05 August
U.S 13:30 Trade Balance (June)
U.S 21:00 Treasury Budget (July)

written by Adam Solomon

The Pound may come under severe pressure today as the national alert was raised to 'critical' following a foiled plot to blow up a UK airline. Sterling fell by the most in two weeks and those of you buying either euros or dollars may be well advised to go to market sooner rather than later. The Pound dipped against the Euro yesterday as we dropped under 1.4800 for the first time in little under a week as the UK trade deficit narrowed by less than expected in June. The shortfall in goods and services widened to £6.8 Billion in May, which was the biggest increase since February and fuelled concerns that UK exports would be insufficient in fuelling economic growth this year. The consensus forecast was for a slight improvement in trade for the month of June but in a climate of rising interest rates and higher energy costs, it seems a strong pound will further hamper UK exports in the second half of 2006. The focus yesterday turned to the Bank of England's quarterly inflation report, which showed that growth in the economy will continue to accelerate with inflation peaking at 2.7% by the end of the year. This is well beyond the government's comfort zone and speculation will intensify that this month's surprise rate hike will be repeated in the coming months as the BoE attempts to bring inflation back under control. However, the surprising hawkish tone of the report failed to boost the Pound as we dropped by 0.4% versus the Euro at the close last night.

The Euro made gains against Sterling and the Dollar yesterday despite the apparent lack of any significant economic data in the Euro-zone. However, the ECB monthly bulletin is widely expected to mirror the tone of the press conference last week where the chairman, Jean-Claude Trichet, said that a further tightening of interest rates may be warranted in the coming months. Crucially, the language used in the statement wasn't as aggressive towards raising interest rates as in previous months with Trichet dropping the word 'vigilant' from the statement, a term the market has come to associate as a signal for a future rate increase. Therefore, the monthly bulletin this morning will take on added significance and may provide some direction on the Central Bank's stance with regard a further rise in Euro-zone interest rates.

The Dollar remained relatively unchanged against the Pound yesterday, holding firm above 1.9000 as U.S wholesale inventories rose by 0.8% June, which was slightly ahead of expectations following a revised 0.9% gain in May and it seems that rising petrol prices and higher interest rates are not having a damaging effect on consumer demand as sales increased by 1.4%. The monthly U.S Trade Balance is actually released this afternoon in the States with forecasters anticipating that the deficit probably grew to $64.0 Billion in June. The Dollar may come under pressure if the gap in goods and services actually increased by more than anticipated, while the weekly jobless report will provide an indication of the relative strength of the U.S labour market after the unemployment rate rose to 4.8% in July.

Data Released 10th August

EU 09:00 ECB Monthly Bulletin

U.S 13:30 Weekly Jobless Claims w/e 05 August
U.S 13:30 Trade Balance (June)
U.S 21:00 Treasury Budget (July)

written by Adam Solomon

The U.S Dollar remained relatively unchanged last night after the Federal Reserve held interest rates at 5.25% for the first time since June 2004 after 17-consecutive rate hikes. The accompanying statement seemed to suggest that Fed policy makers are not so concerned with rising inflationary pressures, as the committee voted 9-1 in favour of keeping rates on hold. Therefore, speculation has already begun that the Fed will continue to keep rates on hold in September as the statement suggested inflation would moderate over time, indicating that interest rates are at an appropriate level. However, the Dollar was largely unaffected in the aftermath of the announcement and held firm around 1.9070 last night as the market had anticipated only a 20 per cent chance of a rate hike this month. There was also some significant economic data released yesterday in the States that seemed to suggest that U.S inflation is still accelerating even though growth in the economy appears to be moderating. Unit Labour costs expanded to a 2-year high in the second quarter, increasing to 4.2% from just 2.5% in the first while elsewhere, Nonfarm productivity rose by significantly less than expected with the annual growth rate up just 1.1% from the first quarter. The focus today in terms of data released will be the U.S Trade Balance for June and forecasters are anticipating that the deficit in good and services probably expanded to $64.0 Billion for the month of June. We can expect the Dollar to come under pressure should the deficit increased by more than expected, while elsewhere, the weekly jobless report will provide an indication of U.S unemployment, which has steadily increased over the last month.

The Pound continues to remain firm against the majors but we might of expected to see some further gains yesterday after a report by the British Retail Consortium showed that sales had jumped 6.1% in the year to July following gains of just 4.7% in June. It seems that surging energy costs and therefore, rising utility bills have failed to deter the consumer but if the pace of economic growth begins to moderate, last week's surprise rate hike by the Bank of England will be questioned as a touch premature. On that note, the focus this morning will fall on the Bank of England's quarterly inflation report and press conference as investor's attempt to gauge why the MPC decided to lift UK interest rates this month. Sterling may come under some pressure if the report shows that inflation hasn't accelerated at the pace anticipated in the last quarter and that may rein in interest expectations. There is also some significant data released in the UK this morning with the Global Trade Balance expected to show that the deficit narrowed slightly in June after the gap in goods and services increased to £6.8 Billion in May, which was the biggest increase since February and suggested that UK exports will be unable to fuel economic growth.

The Euro may make further gains against the Dollar after the Federal Reserve decided to hold U.S interest rates last night, while the ECB have signalled that further rate hikes may be 'warranted' over the coming months and therefore, the rate differentials between the two economies will continue to compress. However, the data released hasn't been too positive and there has been a sparse supply of economic data released this week in the Euro-zone but the German Trade surplus did provide a relative reprieve yesterday, increasing by more than expected in June. Elsewhere, German industrial production actually fell 0.4% to bring the annual rate of growth down from 6.0% to 4.6%. The Euro remained relatively unchanged versus the Pound yesterday as we closed around 1.4840 and without any significant Euro-zone data released, the market may be fairly quiet for the remainder of the week.

Data Released 9th August

UK 09:30 Global Trade Balance (June)
- Trade Balance ex EU

UK 11:00 BoE Quarterly Inflation Report & Press Conference

U.S 15:00 Wholesale Inventories (June)

written by Adam Solomon

The Pound continued to make further gains against the Dollar yesterday and rose to an eight month high versus the Euro despite weaker than expected industrial production data as output increased by just 0.1% in June, which was much lower than forecast and a significant drop from May. The robust growth in the manufacturing sector was one of the primary reasons in the Bank of England's decision to lift UK interest rates last week but it seems that rising raw material costs and surging energy prices are have a damaging effect on factory production despite faster economic growth lending a boost to export demand. Nevertheless, the Pound remained relatively unchanged on the release of the data and made further gains throughout the course of the day to firm 0.2% against the Euro and a further 0.1% versus the Dollar. There is some significant UK data released this morning with the BRC retail sales survey widely expected to show a modest decline in the figures for July as soaring temperatures may have kept consumers away from the shops. In addition, a report from the National Institute of economic and social research showed that the UK economy supposedly grew at 0.8% in the three months through July, which was slightly faster growth than the previous 3 months. The Bank of England's quarterly inflation report, due tomorrow, will therefore take on added significance and investor's are speculating that the report will help rein in UK interest rate expectations.

There was a sparse supply of economic data released in the Euro-zone yesterday and that theme will continue for the majority of this week. The ECB also raised interest rates last week and signalled that a further tightening of monetary policy may be warranted in the coming months. The Central Bank's monthly bulletin is due tomorrow and it is widely expected to reiterate the hawkish tone from the press conference last week. In addition, there is some inflation data released on Friday with the final estimates for second quarter GDP in the big three euro-zone economies and if economic growth continues to accelerate throughout the Euro-zone, speculation will intensify that the ECB will need to continue raising interest rates from the current 3.0%.

Without doubt, the focus today will fall on the FOMC rate announcement this evening where it is widely anticipated that the Federal Reserve will hold U.S interest rates for the first time in 18-months. Following a significant slowdown in economic activity and the recent rise in the unemployment rate, the Fed may be given scope to pause at 5.25% but recent comments from several Fed policy makers have left the decision in the balance. The outcome of the announcement will determine the Dollar's next move with investor's pricing in only a 20% chance that the Fed will hike today but as we found out last week with the Bank of England, there is still a chance that U.S interest rates may rise once more. In addition to the rate announcement, there is some significant data released in the States today, which may provide direction ahead of the Fed's decision. Unit labour costs in the second quarter are widely anticipated to show robust gains in the data released this afternoon, rising to 3.5% from 1.6% in the first quarter.

Data Released 8th August

UK 11:00 BRC Retail Sales Survey (July)

GER 11:00 Industrial Production

U.S 13:30 Unit Labour Costs (Q2)
U.S 13:30 Non Farm Productivity (Q2)
U.S 19:15 FOMC Rate Announcement

written by Adam Solomon

Following on from last week, the Pound has strengthened to the highest levels against the Dollar and the Euro this year after the Bank of England unexpectedly raised UK interest rates by 25 basis points for the first time since last July. According to many investors, there was only a 15 per cent that rates would go up this month but following higher inflation, rising energy costs and faster economic growth, the MPC decided to lift interest rates to 4.75%. However, by no means are we entering a prolonged cycle of monetary tightening and last week's move by the BoE will be seen as purely a measure to calm inflation. Nevertheless, the Pound has rallied furiously towards the end of last week to trade above 1.4800 versus the Euro and break the 1.9000 barrier against the Dollar. There is a host of significant UK data released this week but following the surprise decision to lift rates, the BoE's quarterly inflation report on Wednesday will take on added significance as investor's attempt to gauge why the Central Bank chose to raise interest rates this month. The focus today will fall on UK industrial production for June with forecasters anticipating that the recent revival in the manufacturing sector will reflect the previous CBI and PMI surveys. Manufacturing output is expected to increase by 0.2% from the previous month while production may stay unchanged, showing growth at 0.3%.

The Euro continued to decline against the Pound towards the end of last week despite the ECB lifting interest rates for the fourth time this year as economic activity in the Euro-zone continues to accelerate. In the accompanying press conference, the chairman of the ECB, Jean-Claude Trichet, said a further tightening of monetary policy may be 'warranted' in the coming months but crucially, he dropped the term 'vigilant from the statement, a word the market has come to associate with a further rise in rates in the near short-term. There is a sparse supply of economic data released in the Euro-zone this week with the focus falling on the ECB monthly bulletin on Wednesday. It is widely expected that the bulletin will mirror the tone of the press conference last week while elsewhere, there is some significant inflation data released in France and Italy, which will provide an indication of the strength of the Euro-zone economy.

Following on from Friday, the Dollar has come under intense pressure after the monthly U.S job report showed that the economy added fewer jobs than expected in July and the unemployment increased to 4.8%, which has severely dented expectations that the Federal Reserve will continuing raising interest rates this week. Nonfarm Payrolls on Friday showed that the economy added just 113,000 jobs last month against expectations of an increase of 150,000 while the average hourly earnings remained unchanged. Therefore, investor's trimmed their bets of an August rate rise, factoring in only a 20% chance that the Fed will raise rates above the current 5.25% for the eighteenth consecutive month. In addition to the FOMC rate announcement tomorrow evening, there is a host of significant data released in the States with the focus falling on the monthly U.S trade balance and Retail sales data for July. The Dollar may decline further against the Pound after breaking the resistance at 1.9000 last week and forecasters are anticipating that the deficit in goods and services actually widened in July, showing a modest increase to $64 billion.

Data Released 7th August

UK 09:30 Industrial Production (June)
- Manufacturing Output

U.S 20:00 Consumer Credit (June)

written by Adam Solomon

The Bank of England unexpectedly raised UK interest rates yesterday for the first time in nearly two years, sighting rising inflationary pressures and faster economic growth for the seemingly premature move. The market had only factored in a 15% chance that policy makers would lift interest rates by a quarter point to 4.75% and thusly reverse the cut in rates 12 months ago. Therefore, Sterling has rallied furiously against the majors, rising by 0.5% versus the Dollar to close up and around 1.8850 and a further half a point jump against the Euro as we closed above 1.4700 for the first time since May. It was widely anticipated that the Bank would raise UK rates at some point in the third or fourth quarter as growth in the economy accelerated at the fastest pace in two years with inflation creeping up to 2.5%, well above the government's 2% comfort zone. The Bank of England have now followed other central banks around the world in raising borrowing costs but by no means are we entering a new cycle of monetary tightening and therefore, the BoE's move yesterday can be merely described as a measure to control inflation.

The Euro was unable to put up much of a fight yesterday despite the European Central Bank raising their benchmark interest rates for the fourth time this year, which was widely expected and largely factored into the market. However, in the accompanying press conference, the chairman of the ECB, Jean Claude Trichet, gave an insight into the Central Bank's future intentions with regard monetary policy, saying that further interest rate hikes maybe 'warranted' in the coming months. Although, he did drop the word 'vigilant' from the statement, a word he has used to signal previous rate increases. Elsewhere, there was some significant data released in the Euro-zone prior to the ECB announcement as the European service industry fell from the six year high in June as rising oil prices and higher interest rates curbed growth in July. The Euro was also hampered by weak retail data for June as the staging of the World Cup in the region failed to boost sales, which only increased by 0.5% against expectations of 0.8% growth. There is a sparse supply of economic data released in the Europe or the UK this morning but the Euro may come under further pressure against the Pound if Manufacturing in Germany grew by less than 1.0% in June.

The Dollar came under intense pressure yesterday, making further losses against Sterling following the BoE's surprise decision to lift UK interest rates. It is looking increasingly likely that the Federal Reserve will hold interest rates next week with investor's believing a further tightening of monetary policy could send the U.S economy closer to recession. However, the market has factored in a 50:50 chance that the Fed will continue raising rates in August following the Personal Consumption and Expenditure report on Tuesday, which showed that inflation was still accelerating. There was some significant data released in the States yesterday as U.S retailers reported gains in July sales that exceeded expectations as consumer spending shows no signs of cooling, despite rising petrol prices and considerably higher interest rates. While elsewhere, the number of people out of work and claiming benefits rose by 14,000 in the last week and the ADP employment report, which acts as an insight into Nonfarm payrolls this afternoon, only showed an increase of 99,000 jobs last month. The monthly U.S job report, released this afternoon, will take on added significance and could potentially shift expectations on the Fed's decision and forecasters are anticipating that the U.S economy has added 150,000 jobs in July with the unemployment rate expected to be unchanged at 4.6%.

Data Released 4th August

GER 11:00 Manufacturing Orders (June)

U.S 13:00 NonFarm Payrolls (July)
- Unemployment Rate
- Average Hourly Earnings

written by Adam Solomon

The Pound made further gains against the Euro and the Dollar yesterday, despite the lack of any significant data released in the UK as we approach the Bank of England interest rate announcement at midday today. Over the past month, speculation has intensified that the BoE will raise borrowing costs for the first time in 12 months due to rising inflation, strong retail sales and accelerating economic growth in the second quarter. However, the MPC voted unanimously to hold rates at 4.50% in July and sentiment for the Pound may be rocked should policy makers continue to adopt a more cautious, measured approach with regard monetary tightening. In addition to the UK rate announcement, there is a host of significant data released both in Europe and the UK with the CIPS Services Survey released this morning and forecasters are anticipating that the recent pick-up in the services sector will decline modestly in July to a reading of 58.5 from 58.8 in June.

Despite a plethora of positive economic data and the assumption that the ECB will lift interest rates by 0.25% today, the Euro has continued to struggle against the Pound and yesterday the market remained relatively stagnant, hovering around 1.4650 at the close of trading last night. There was some data released in the Euro-zone yesterday with the Producer Price Index coming in as expected in July at 0.2% but the year-on-year growth exceeded expectations by climbing to 5.8%. There is also some significant data released this morning, which may fuel speculation that the ECB are set to quicken the pace of monetary tightening in the third quarter. The PMI services report is widely expected to show a decline towards 60.0 in July from a reading of 60.7 the previous month, while elsewhere, Euro-zone retail sales is expected to increase significantly in June, rising by 0.8% on the month.

The Dollar has continued to weaken in the past 24hrs as we briefly traded uptowards 1.8800 versus the Pound yesterday as the negative sentiment surrounding the Dollar continued despite a better than expected inflation report earlier this week, which has revived speculation that the Federal Reserve may actually lift interest rates for the eighteenth month in succession. However, the majority of the economic data released in the States has reiterated Ben Bernanke's assumption that U.S inflation will gradually decelerate as the economy continues to slow and therefore, we can expect the Fed to hold interest rates at 5.25% in their next meeting on August 8th. We may see further Dollar weakness throughout the course of today with the weekly jobless report widely expected to show that the number of people out of work and claiming benefits actually rose in the week ending the 29th July, while elsewhere, the ISM Non-manufacturing index is expected to remain unchanged at a reading of 57.0 in July.

Data Released 3rd August

UK 09:30 CIPS Services Survey (July)
UK 12:00 BoE Rate Announcement

EU 12:45 ECB Rate Announcement
EU 13:30 ECB Press Conference
EU 10:00 Retail Sales (June)
EU 09:00 PMI Services (July)

U.S 13:30 Weekly Jobless Claims (w/e 29th July)
U.S 15:00 ISM Non-manufacturing Index (July)
U.S 15:00 Factory Goods Orders (June)

written by Adam Solomon

The U.S Dollar fell to the lowest levels in almost a month versus the Pound and the Euro yesterday despite some positive U.S data and comments from the new Treasury secretary, Hank Paulson, who reiterated his desire to see a 'strong dollar' in the coming months. In recent weeks, speculation has been building that the Federal Reserve would hold interest rates at 5.25% for the first time in 18-months as economic growth shows signs of slowing in the second quarter results. However, the personal income and expenditure report, which is the Fed's preferred measure for inflation, showed that price pressures remained in June as U.S consumer spending increased by 0.4% on the month while the inflation gauge accelerated by 2.4% from the same month last year, which is the most since September 2002. In addition, the ISM index showed that growth in U.S manufacturing unexpectedly rose in July, rising to 54.7 from 53.8 the previous month, which is the first increase since April.

Therefore, some investor's are speculating that the Federal Reserve will need to lift interest rates to 5.50% in the their monthly FOMC rate announcement next week while elsewhere, the monthly U.S job report on Friday will take on added significance on which direction policy makers will take. In light of the strong inflation data and the pro-dollar comments from Mr Paulson you would expect the Dollar to stage a modest rally against the majors but instead we closed above 1.8700 against Sterling last night and we may see further Dollar weakness this afternoon, particularly if the ADP Employment report comes out under expectations.

The Pound received a timely boost yesterday ahead of the Bank of England interest rate decision tomorrow as Nationwide House Prices showed a better than expected increase in July with prices rising a robust 0.8% despite forecasters anticipating a more modest 0.4% gain. The recent reports on the UK housing market have all displayed signs of growth and will therefore give the BoE scope to lift borrowing costs. However, the CIPS manufacturing survey, which has showed growth in the sector in recent months, unexpectedly fell lower to a reading of 53.8 in July despite initial forecasts predicting a modest drop towards 54.5. UK manufacturing accounts for a large percentage of GDP growth and policy makers will be concerned that a drop in output would hinder economic growth in the latter part of the year. Without any significant data released in the UK today, the focus will be squarely on the BoE rate announcement tomorrow and if policy makers elect to hold rates at 4.50% for the 12-month running, we can expect to see the Pound weaken in the short-term.

The Euro remained relatively unchanged versus the Pound yesterday despite a host of positive economic data released int he Euro-zone as German unemployment fell to the lowest level since August 2004 in the figures for July as the jobless rate dropped to 10.6%. Elsewhere, the Purchasing Manager's index show that European manufacturing expanded at the fastest pace in over 6-years in July, which has further emphasised sentiment that the ECB will need to quicken the pace of monetary tightening to cope with rising inflationary pressures. In addition, the manufacturing report has provided evidence that higher interest rates are not having a negative impact on the economy as economic growth continues to flourish while rising inflation is still a concern for policy makers. It is widely expected that the ECB will raise interest rates to 3.0% tomorrow and the chairman, Jean Claude Trichet, may announce that the Central Banks intends to continue tightening rates in the coming months. There is a sparse supply of economic data released in the Euro-zone today but the Producer Price Index for June should provide a gauge on inflation and it is anticipated that prices have increase by just 0.2% from May.

Data Released 2nd August

EU 10:00 Producer Price Index (June)

U.S 13:15 ADP Employment Report (July)

written by Adam Solomon

The Pound received a boost yesterday ahead of the Bank of England interest rate announcement later this week as momentum continues to build in the UK housing market despite forecasters anticipating a relative slowdown in the second half of the year. Mortgage Approvals in the UK rose to the highest level since January this year with lenders distributing 120,000 home loans in June, which was significantly more than expected, while Net mortgage lendings remain near the 2-year high set in June 2004. The BoE revived the UK property market 12 months ago by cutting interest rates to the current 4.50% and the data released yesterday suggests that housing will continue to support consumer demand and economic growth throughout the remainder of 2006. The Pound may make further gains against the majors today with the CIPS Manufacturing Survey released this morning and forecasters are anticipating that the recent revival in output will decline modestly in July, dropping to a reading of 54.5 from 55.1 in June.

The Euro remained relatively unchanged against the majors yesterday as we closed around 1.4640 versus the Pound despite Industrial and Consumer confidence jumping to a five-year high in July. The Sentiment Index unexpectedly rose to the highest level since 2001 last month while Euro-zone inflation accelerated at the fastest pace since October last year, which will prompt speculation that the ECB will continue raising interest rates. The focal point today in terms of economic data released will be the Purchasing Manager's Index for Manufacturing in the Euro-zone region and it is widely expected to remain at an elevated level in July and perhaps showing a very slight decline while elsewhere, unemployment in Europe is expected to stay unchanged at 7.9%.

The U.S Dollar came under further pressure yesterday as it looks increasingly likely that the Fed will hold interest rates at 5.25% in August for the first time in their 18-month campaign. However, there was some positive economic data released in the States yesterday as Manufacturing output in the Chicago area rose significantly in July as production increased in order to cope with consumer demand. The Chicago PMI accelerated to a reading of 57.9 this month despite forecasters anticipating a decline towards 56.5. However, the Dollar was largely unaffected on the release of the figure and we continued to trade uptowards 1.8700 against the Pound at the close. There is some hugely significant inflation data released in the States today with Personal Income and expenditure widely expected to increase by 0.2% in June but consumption and the PCE Deflator, the Fed's preferred measure for inflation, is expected to remain unchanged from May. This would signal that interest rates are at an appropriate level as the U.S economy continues to decelerate.

Data Released 31st July

UK 07:00 Nationwide House Prices (July)
UK 09:30 CIPS Manufacturing Survey (July)

EU 10:00 Unemployment Rate (June)
EU 09:00 PMI Manufacturing (July)

U.S 15:00 Construction Spending (June)
U.S 15:00 Pending Home Sales (June)
U.S 15:00 ISM Manufacturing (July)
U.S 21:00 Domestic Auto Sales (July)

written by Adam Solomon