Daily Insight

The Pound came under intense pressure against both the Euro and the Dollar yesterday and the general consensus is that we could see further downside movement particularly after the damaging omission from the UK office of national statistics yesterday. The ONS announced that a significant error had been made in one of their inflation models, leading to an incorrect measure of UK national income in the second quarter. Originally, wage growth was estimated at 6%, which would of been one of the key reasons for the Bank of England raising UK interest rates last month. However, in the revised estimate yesterday the figure came in at 4.8%, easing inflation concerns and severely dampening the chances of a further rise in UK rates before the turn of the year. As a result, the Pound declined against the Euro by nearly a whole cent on the session to close well under 1.4800 and we saw further losses against the dollar following a particularly positive report on the U.S housing market earlier this week. There is some significant economic data released this morning in the UK, which is unlikely to revive Sterling sentiment with mortgage approvals widely expected to remain unchanged at 120,000 in August while consumer confidence may show a marginal improvement this month.

The Euro has been making substantial gains against the Pound after reaching a yearly low at 1.4950 earlier this week and the positive sentiment continued yesterday as German unemployment unexpectedly declined in August ahead of the ECB interest rate announcement next week. From a technical point of view, the rejection of the break above 1.4910 leaves us with a particularly negative outlook going forward after we failed to bounce back after such a sharp reversal. Therefore, we can expect the Euro to make further gains against the Pound and there is some significant economic news released in the Euro-zone this morning that could potentially influence the ECB's decision to raise rates beyond October. Firstly, the EC sentiment index, which analyses industrial and consumer confidence in the region is widely expected to remain at an elevated level this month while the flash estimate consumer price index may show sustained inflationary pressures, leading to further speculation that the ECB will need to continue raising interest rates.

The Dollar has proceeded to make significant gains over the Pound this week following an unexpected pick-up in the housing sector for the month of August, which has rekindled speculation that the Federal Reserve may raise U.S interest rates once more before the turn of the year. Therefore, the economic data released this week has taken on added significance and yesterday the Dollar remained firm against the majors despite a less than convincing report on the final estimate for second quarter GDP. U.S economic growth slowed to 2.6% from the first quarter, which was well under expectations as a considerable drop in homebuilding and consumer sentiment dampened expectations. The U.S economy expanded at 5.6% in the first three months of the year and the subsequent slowing of the economy can be attributed to a significant rise in oil prices and the Fed's prolonged campaign of 17-consecutive rate hikes in little under two years. Elsewhere, the weekly jobless report showed that the number of people out of work and claiming benefits actually fell in the week ending the 23rd of September. Over the course of this week, the Dollar has improved by almost 4 cents against the Pound and overnight we managed to break through the trend support at 1.8750 with the major support level at 1.8600, the low from the previous downside move. There is a host of significant economic data released in the States this afternoon with the report on personal income and expenditure taking centre stage and if the Fed's preferred measure of inflation shows a modest increase for the month of August, we can expect the Dollar to make further gains as speculation intensifies over a possible rate hike before the year-end. In addition, the final estimate of the Michigan sentiment is also released today and the consensus forecast is for a modest rise this month while manufacturing activity in the Chicago area may decline from a reading of 57.1 in August to 55.0 this month.

Data Released 29th September

UK 09:30 Mortgage Approvals (August)
UK 10:30 Consumer Sentiment (September)

EU 10:00 EC Sentiment Index (September)
- Industrial / Consumer Confidence
EU 10:00 Flash Consumer Price Index (September)

U.S 13:30 Personal Income & Expenditure (August)
- Core PCE Deflator

U.S 14:45 Michigan Sentiment (September Final)
U.S 15:00 Chicago PMI (September)

written by Adam Solomon

The Pound came under increased pressure yesterday, trading down against both the Euro and the Dollar following some particularly negative commentary from a member of the Bank of England's monetary policy committee regarding a further rise in UK interest rates. The Pound has been making significant gains amid increased speculation that the MPC will lift rates once more before the turn of the year but David Blanchflower, who was the sole voice for a 'no change' in the August meeting, publicly stated that economic growth is likely to slow over the coming months while domestic inflation is likely to moderate as immigration is underpinning wage pressures. However, the negative sentiment that surrounded the Pound in the aftermath of his statement was fairly limited following the release of the CBI distributive trades survey, which came in ahead of expectations and provides further evidence of robust growth in retail spending as unemployment is reduced while the housing market continues to accelerate. There has already been some significant economic data released in the UK this morning as the nationwide index reported that house prices increased by the most in eight months in September, suggesting that the August rate hike did little to curb growth in the housing sector. There average cost of a home rose 1.3% from August with prices rising 8.2% year-on-year, which is the most since February 2005.

The Euro has been making steady gains against the Pound and the Dollar following some particularly positive economic data released yesterday morning as German consumer confidence unexpectedly increased this month despite significantly higher interest rates this year and a planned VAT tax increase at the start of 2007. In addition, the Euro-zone M3 money supply was also released and came out ahead of expectations as the 3-month moving average increased to 7.9% in the month of August, which was way in excess of the ECB's 4.5% target. The gains in money supply into Europe will only add to inflationary pressures and put further impetus on the Central Bank to lift interest rates by a further quarter-point in October. There has been some economic news already this morning as German unemployment dropped for a fifth month in six in September as consumer confidence in Europe's largest economy reached a five-year high this month.

The Dollar has made yet further gains against the Pound in light of some dovish commentary from the Bank of England yesterday despite a seemingly negative report into U.S durable goods orders, which unexpectedly dropped in August by 2.0% excluding transportation following a 2.7% decline the previous month and it was the first back-to-back decrease since May 2004. The U.S economy has entered a period of moderation as consumer spending falters and the housing market continues to retreat, leading to companies scaling back their investment plans in the face of slowing economic growth. Elsewhere, the Dollar received an unlikely boost after a report into new home sales rose unexpectedly in August and after a surprise increase in existing home sales earlier this week, speculation is mounting that the slowdown in the housing sector is beginning to ease. There is some hugely influential data released this afternoon in the States with the final estimate for U.S GDP in the second quarter and it is widely anticipated that the economy expanded at an annual rate of 2.9% from the first as a dramatic slowdown in the housing market this year hampers economic growth. The consensus mirrors the government's forecast in the preliminary estimate released last month but if growth has exceeded expectations in the second quarter, we can expect the Dollar to make further gains against Sterling.

Data Released 28th September

U.S 13:30 GDP / Deflator (Q2 Final)
U.S 13:30 Initial Jobless Claims (w/e 23rd Sept)

written by Adam Solomon

The Euro lost yet more ground against Sterling yesterday, falling to a new yearly low for the fourth day in succession as we traded above 1.4950 for the majority of the European session. Following a damaging report from the ZEW centre of economic research last week into German investor confidence and the seemingly moderating inflationary pressures, the Euro has come under increased pressure against the Pound as a significant drop in oil prices threatens to curb economic expansion and therefore dampen interest rate expectations. As a result, the Ifo index into German business confidence took on added significance yesterday and reported a decline in sentiment for the third month in a row in September, slipping to a reading of 104.9, which was actually slightly ahead of expectations. Economic growth in Europe's largest economy is widely expected to slow dramatically into 2007 as higher interest rates and a planned tax increase weigh heavily on consumer spending. However, it can also be argued that the German economy has accelerated to the fastest pace since 2000 this year and the planned increase in sales tax could prompt consumers to spend now before the introduction in January. This has been emphasised in a report this morning into German consumer confidence, which has risen to the highest level in 5-years this month. The index, which aims to forecast household spending a month in advance, rose to a reading of 8.8, the highest since November 2001 as the faster economic growth and falling unemployment help boost sentiment.

The Pound has looked increasingly strong over the past few weeks as speculation continues to mount that the Bank of England will need to raise UK interest rates again before the turn of the year with many economists factoring in a further quarter-point increase in November. There is some significant data released this morning in the UK with the CBI distributive trades survey expected to provide further evidence of sustained growth in retail spending despite the BoE's surprise rate hike in August. In addition, a report on second quarter gross domestic product is released this morning with the final estimate set to be unchanged from earlier reports with economic growth coming in at 2.6% year-on-year in the second quarter.

The Dollar has made significant gains against the Pound this week following a better than expected report on the sales of existing homes in the States as we drop back under 1.8900 against Sterling. The dollar received a timely boost yesterday as U.S consumer confidence rebounded in September following a sharp rise in petrol prices since July and the report suggests that the Federal Reserve have the scope to continue raising interest rates if inflationary pressures begin to resurface. The index reported that sentiment rose to a reading of 104.5 this month following a nine-month low in August as the labour market shows signs of growth and personal income continues to rise. With the sustained slump in the U.S housing market weighing heavily on economic expansion, cheaper fuel prices will provide some temporary relief to the consumer. There is some significant data released this afternoon in the States, which could effectively push the dollar higher against the majors with durable goods orders, excluding transport, expected to increase by 0.8% in August, which will provide further evidence that corporate investment will help spur economic growth. Elsewhere, a report this afternoon may provide further evidence of a slowdown in the housing sector as the sales of new homes are expected to fall to an annual rate of 105 Million in August as higher interest rates discourage first time buyers.

Data Released 27th September

UK 09:30 GDP (Q2 Final)
UK 09:30 Current Account Balance (Q2)
UK 11:00 CBI Distributive Trades (September)
EU 09:00 M3 / 3 Month moving Avg (August)
U.S 13:30 Durable Goods Orders (August)
U.S 15:00 New Home Sales (August)

written by Adam Solomon

The Euro lost yet more ground against Sterling yesterday, falling to a new yearly low for the fourth day in succession as we traded above 1.4950 for the majority of the European session. Following a damaging report from the ZEW centre of economic research last week into German investor confidence and the seemingly moderating inflationary pressures, the Euro has come under increased pressure against the Pound as a significant drop in oil prices threatens to curb economic expansion and therefore dampen interest rate expectations. As a result, the Ifo index into German business confidence took on added significance yesterday and reported a decline in sentiment for the third month in a row in September, slipping to a reading of 104.9, which was actually slightly ahead of expectations. Economic growth in Europe's largest economy is widely expected to slow dramatically into 2007 as higher interest rates and a planned tax increase weigh heavily on consumer spending. However, it can also be argued that the German economy has accelerated to the fastest pace since 2000 this year and the planned increase in sales tax could prompt consumers to spend now before the introduction in January. This has been emphasised in a report this morning into German consumer confidence, which has risen to the highest level in 5-years this month. The index, which aims to forecast household spending a month in advance, rose to a reading of 8.8, the highest since November 2001 as the faster economic growth and falling unemployment help boost sentiment.

The Pound has looked increasingly strong over the past few weeks as speculation continues to mount that the Bank of England will need to raise UK interest rates again before the turn of the year with many economists factoring in a further quarter-point increase in November. There is some significant data released this morning in the UK with the CBI distributive trades survey expected to provide further evidence of sustained growth in retail spending despite the BoE's surprise rate hike in August. In addition, a report on second quarter gross domestic product is released this morning with the final estimate set to be unchanged from earlier reports with economic growth coming in at 2.6% year-on-year in the second quarter.

The Dollar has made significant gains against the Pound this week following a better than expected report on the sales of existing homes in the States as we drop back under 1.8900 against Sterling. The dollar received a timely boost yesterday as U.S consumer confidence rebounded in September following a sharp rise in petrol prices since July and the report suggests that the Federal Reserve have the scope to continue raising interest rates if inflationary pressures begin to resurface. The index reported that sentiment rose to a reading of 104.5 this month following a nine-month low in August as the labour market shows signs of growth and personal income continues to rise. With the sustained slump in the U.S housing market weighing heavily on economic expansion, cheaper fuel prices will provide some temporary relief to the consumer. There is some significant data released this afternoon in the States, which could effectively push the dollar higher against the majors with durable goods orders, excluding transport, expected to increase by 0.8% in August, which will provide further evidence that corporate investment will help spur economic growth. Elsewhere, a report this afternoon may provide further evidence of a slowdown in the housing sector as the sales of new homes are expected to fall to an annual rate of 105 Million in August as higher interest rates discourage first time buyers.

Data Released 27th September

UK 09:30 GDP (Q2 Final)
UK 09:30 Current Account Balance (Q2)
UK 11:00 CBI Distributive Trades (September)

EU 09:00 M3 / 3 Month moving Avg (August)

U.S 13:30 Durable Goods Orders (August)
U.S 15:00 New Home Sales (August)

written by Adam Solomon

Following on from last week, the Pound made further gains against both the Euro and the Dollar to trade above 1.4900 for the first time this year while Sterling also traded above 1.9000 versus the Dollar. That trend looks set to continue in the beginning of this week amid a plethora of significant data released in Europe and the States with the focus falling on the CBI distributive trades survey on Wednesday where the market will be looking for further evidence of a strong rise in retail spending. While elsewhere, UK house price inflation and mortgage approvals will provide some insight as to whether the strong growth in the housing market will be sustained going into the fourth quarter and therefore add to the case for a further rise in UK interest rates. There was also strong support from the Pound following comments from the deputy governor of the Bank of England, Sir John Gieve, who stated that he considered voting for a rise in rates this month where the MPC unanimously elected to hold their benchmark interest rate at 4.75%. As a result, Sterling rose 0.2% against the Euro to cross back above 1.4900 but was fractionally weaker against the Dollar following some surprisingly better U.S housing data.

The Euro continues to struggle against the Pound following a sparse supply of economic data released last week but many economists view the next four days as pivotal in terms of data with several important releases spread over the week. Firstly, the flash estimate for the harmonised consumer price index may show that inflationary pressures have moderated in the last month with forecasters anticipating a marginal fall below 2.0%, which correlates with a 20% drop in oil prices since July. Following the significant drop in German economic sentiment in the last month, the Ifo index released this morning will take on added significance as business confidence probably fell for a third month in September due to higher interest rates and the planned tax increase scheduled for 2007. The index is widely expected to drop to a reading of 104.4 in September from 105 in August and fall below the consensus is likely to hurt the Euro. Economic expansion in Europe's largest economy is beginning to look bleak as a slowdown in global growth has a negative effect on German exports while the increase in value added tax will undoubtedly hurt consumer spending. However, it does look likely that the ECB will raise interest rates next week as the fastest growth since 2000 threatens to fuel inflationary concerns.

The Dollar has weakened significantly against the Pound in the last week following a damaging report from the Philadelphia Fed, which showed that manufacturing activity in the region declined for the first time since April 2003 this month. The index dropped 0.4% from a reading of 18.5 in August led by a significant decline in new orders and exports out of the U.S and therefore, the Chicago PMI and Richmond Fed surveys will be watched closely this week for further evidence of a slowdown in the manufacturing sector. It does look increasingly likely that the Federal Reserve will hold U.S interest rates for the remainder of this year but until the chairman, Ben Bernanke, publicly declares his intention to keep rates on hold, we can expect any Dollar weakness to be limited with the economic data released taking on added significance. The Dollar did receive an unlikely boost yesterday amid the release of some important housing data, which showed that sales of existing homes dropped by less than expected in August to an annual rate of 6.30 million. However, median house prices dropped 1.7% year-on-year last month, which was the first annual decline since April 1995. There is some significant data released this afternoon in the states with consumer confidence likely to improve in September from a nine-month low the previous month as a large drop in petrol prices lends a boost to sentiment.

Data Released 26th September

GER 09:00 Ifo Index (September)

U.S 15:00 Consumer Confidence (September)
U.S 15:00 Richmond Fed Index

written by Adam Solomon

There is a lot of volatility in the Forex market at present and yesterday the Pound made significant gains against the majors, strengthening to a new-yearly high against the Euro at 1.4910 and we broke above 1.9000 versus the Dollar. The positive sentiment surrounding the Pound began with a better than expected report on the CBI industrial trends survey, which improved to a 21-month high this month, indicating that growth in the manufacturing sector will boost UK gross domestic product this year. However, price expectations for the next three months dropped by more than anticipated in September, dampening expectations of a further rise in UK interest rates this year. Following the Fed's decision to hold rate in the U.S this week and the particularly soft comments on the inflation, the Pound has made significant gains against the Dollar, closing well above 1.9000 last night.

The Euro has continued to struggle against Sterling over the past 24hrs, falling to a new yearly low for the second day in succession yesterday to trade above 1.4900. However, there has been some significant inflation data in France this morning, which has given the single currency a much needed boost with the Consumer Price index jumping by the most in seven years in the month of August following a significant fall in French unemployment. Consumer spending accounts for 15% of Europe's third largest economy and the index reported an increase of 3.3% in August as the French economy accelerates at the fastest pace since 2001 this year, adding to the case for a further rise in Euro-zone interest rates.

The Dollar plummeted yesterday to a two week low against the Pound at 1.9050 and came under pressure versus the Euro as we head back above 1.2800 following a damaging report from the Philadelphia Fed, which showed that manufacturing activity in the region declined for the first time since April 2003. The index dropped 0.4% this month from a reading of 18.5 in August led by a significant decline in new orders and exports out of the U.S, which correlates with the ever widening gap in trade. Following a considerable slow-down in the U.S housing sector this year, the report yesterday will only fuel concerns that growth in manufacturing will continue to decline as economic growth slows in the fourth quarter.

Data Released 22nd September

EU 10:00 Industrial Orders (July)

Written by Adam Solomon

The Pound made further gains against the majors yesterday, rising to a year high against the Euro following the release of the minutes from the Bank of England's last policy meeting where the MPC elected to hold UK interest rates at 4.75%. It was widely regarded that the minutes would provide some insight into the possibility of further rise in UK interest rates this year and policy makers did highlight persistant inflation concerns. The chancellor has raised his growth forecast for 2006 in the last month and the IMF have also expressed concerns that UK inflation will rise towards 2.7% by the turn of the year, which is way in excess of the government's 2.0% comfort zone. The minutes also showed that the eight-strong committee voted unanimously in favour of keeping rates on hold this month but it does look increasingly likely that the Bank of England will raise borrowing costs once more this year with many economists factoring in a probable hike in November. The Pound may make further gains this morning with the release of the CBI monthly trends survey, which showed that business expectations and new orders rose to a 20-month high in August and a strong figure is also expected tomorrow. Industrial production and manufacturing output will seemingly boost economic growth in the fourth quarter while the survey also highlights persistent inflationary concerns, which will only add to speculation that the BoE will raise interest rates again in November.

The Euro continues to struggle against the Pound falling to a year low yesterday at 1.4880 despite the apparent lack of economic data released this week and therefore, the Euro's decline can be attributed to a technical move through the strong resistance at 1.4850. However, Italian industrial sales dropped by 2.5% in July while orders gained an additional 1.2% against expectations of a more modest rise of 0.2%. The Italian data is likely to have a minimal impact on Euro-zone interest rate expectations with the next scheduled announcement in early October. We fully expect the ECB to lift rates for the fifth time this year next month and many economists have suggested that by the turn of the year, Euro-zone interest rates will be set at 3.5%. Therefore, Euro buyers would be well advised to take advantage of the current rate or at the very least work a stop order around 1.4800 in order to protect against any adverse market movement.

The Dollar remained largely unchanged last night after the Federal Reserve elected to hold U.S interest rates at 5.25% for a second month in succession and the accompanying statement reiterated that inflationary pressures continue to moderate, primarily due to a dramatic cooling of the housing market and a sharp fall in oil prices over the last month. However, inflation is still above the Fed’s comfort zone although the chairman, Ben Bernanke, seemed to suggest that the 17-consecutive rate hikes over the last two years would be sufficient in bringing inflation back under control. Therefore, it looks increasingly likely that U.S interest rates will remain at 5.25% for the remainder of this year with the next move likely to be a cut in early 2007. The Dollar may come under further pressure today with the release of the Philly Fed index, which is widely expected to decline to a reading of 15.0 from 18.5 last month.

Data Released 21st September

UK 11:00 CBI Monthly Trends Survey (Sept)

EU 09:00 Current Account (July)

U.S 13:30 Initial Jobless Claims (w/e 16th Sept)

U.S 17:00 Philly Fed Index (Sept)

U.S 15:00 Leading Indicators (August)

written by Adam Solomon

The Dollar came under increased pressure against the Pound yesterday amid some particularly soft U.S data, which may have a bearing on tonight's FOMC rate announcement. Producer Price Inflation rose by less than anticipated in August with prices excluding food and energy falling to a three-year low, which only reiterates comments from the Fed chairman, Ben Bernanke, that U.S inflation will continue to moderate in the fourth quarter. The index showed that prices paid to U.S producers rose 0.1% on the month although the core rate fell 0.4% year-on-year in August, which is the first back-to-back monthly decline since the back end of 2002. Therefore, with seemingly moderating inflationary pressures at the consumer level aswell, it seems evermore likely that the Fed will hold U.S interest rates 5.25% for the second consecutive month. The Dollar also lost ground on the release of some soft housing data yesterday, which showed that construction declined by more than expected in August, reaching the lowest level in three years. The 6% drop in housing starts to an annual rate of 1.665 million last month means that builders started work on the lowest number of new homes since 2003 and a sharp drop in consumer demand will leave a record number of unsold homes swelling the market. Without any economic data released in the States today, the focus will fall heavily on the Federal Reserve interest rate announcement this evening and the consensus forecast is for a 'no change' in monetary policy this month, which is already 100% factored into the market and any comments suggesting a further rise in rates before the turn of the year will surely boost dollar sentiment.

There has been a distinct lack of fundamental data released in the UK this week but the Pound looks increasingly strong against the majors, firming an additional 0.3% against the Euro to close around 1.4850 last night. However, the focus this morning will fall on the release of the minutes from the Bank of England's last policy meeting where the MPC elected to hold UK interest rates at 4.75% following a surprise hike in August. The minutes should provide an insight into how the 8-strong committee voted with a unanimous decision expected but the market will be looking for any indication of a further rise in rates before the end of the year with economists anticipating a likely rate hike towards November. In addition, there is a report this morning on public sector net cash requirement, which is the amount of money the government has to borrow in order to meet its expenditure.

The negative sentiment surrounding the Euro continued yesterday following a report on producer price inflation in Germany, which suggests that inflationary pressures may be moderating in Europe's largest economy in the face of falling oil prices and higher interest rates. The Euro fell an additional 0.2% against the Dollar yesterday after German investor confidence dropped to the lowest level in over seven-years this month as rising interest rates and a planned tax increase next year hampered the outlook for growth in the region. The damaging report from the ZEW centre for economic research showed that the index dropped to minus 22.2 in September, which is the lowest level since January 1999. The German economy has grown at the fastest pace in six years in 2006 and the report yesterday provides further evidence that growth will begin to moderate next year.

Data Released 20th September

UK 09:30 BoE Minutes from September meeting
UK 09:30 PSNCR

U.S 19:15 FOMC Rate Announcement

written by Adam Solomon

The Dollar made significant gains against the Pound yesterday in the build-up to the FOMC rate announcement tomorrow despite a host of negative economic data that effectively should of hampered any lingering dollar sentiment. Firstly, the U.S current account deficit widened by more than anticipated in the second quarter with the shortfall coming in at $218.4 Billion following a revised estimate of $213.2 Billion in the first three months of the year. The growing deficit poses a significant risk to economic stability as the gap in trade amounts to roughly 6.6% of gross domestic product. However, given the unexpected shortfall in the current account, the dollar held firm against the Pound, closing just under 1.8800 last night. In addition, a report from the Treasury showed that net capital inflows collapsed in July as foreign investor's slowed purchases of U.S securities in the face of falling demand. Net holdings increased $32.9 Billion against expectations of a more modest fall towards $70 Billion from June and investments were therefore insufficient to cover July's $68 Billion trade deficit. It looks increasingly likely that the Federal Reserve will hold U.S interest rates at 5.25% in the evening announcement tomorrow but there is some significant inflation data released this afternoon in the States, which may raise expectations of a further hike in rates this year. Producer price inflation is widely expected to follow the consumer price index in August with prices, excluding food and energy, falling to an annual rate of 3.8% from 4.2% in July, which falls in line with a significant drop in oil prices over the last month. In addition, there is some significant housing data released today, which is expected to show that builders started work on 1.720 million new homes in August, the fifth decline in the last six months as higher interest rates discourage first time buyers.

There is a distinct lack of economic data released in the UK this week with the focus falling on the minutes from the Bank of England's last policy meeting tomorrow as the market looks for further evidence of a rise in UK interest rates later this year. Speaking at the G7 meeting in Singapore, Gordon Brown said that economic growth in Britain was stronger and more balanced in 2006 with the international monetary fund raising their forecasts for UK growth to 2.7% from April's estimate of 2.5%. With the government's target at 2.0%, it looks increasingly likely that the Bank of England will need to raise UK interest rates in order to rein in rising inflation concerns.

The Euro made gains against Sterling yesterday despite a damaging report on Euro-zone industrial production, which unexpectedly declined 0.4% against expectations of 0.2% increase in July. However, over the last few weeks several members of the ECB's governing council have publicly announced their concerns over rising inflationary pressures and yesterday Klaus Liebscher reiterated their comments ahead of the next rate decision in the first week of October. Although, the Euro has come under pressure this morning following a report on producer price inflation in Germany, which slowed for the third month in August and correlates with the sustained drop in oil prices from a record level this year. Core prices fell to an annual rate of 5.9% in August from 6.0% the previous month, signalling that inflationary pressures may be moderating in Europe's largest economy. In addition, the Euro may decline further later this morning on the release of the ZEW survey for economic sentiment in Germany, which is widely expected to decline further in August after recording the lowest reading since 2001 in July.

Data Released 19th September

GER 10:00 ZEW Expectations Balance (September)

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

written by Adam Solomon

Following on from last week, the Dollar remained firm against the Pound and the Euro on Friday despite some soft inflation data and an unexpected fall in industrial production in the last month. U.S consumer price inflation, excluding food and energy, rose 0.2% in August, which was largely in line with expectations and further emphasises that inflation seems to be moderating following the Fed's sustained campaign in raising interest rates over the past two years. The focus this week will fall heavily on the FOMC rate announcement on Wednesday where it is widely anticipated that the Fed will hold interest rates at 5.25% for the second month in succession as the Reserve bank take time to assess how monetary tightening has contributed to a slowdown in economic growth. There is a host of significant data released this afternoon in the States that could weigh heavily on Dollar sentiment including a report from the National Association of Home Builders. The survey has reported a slowdown in the property market for the past 10-months in succession and is expected to decline further this month, raising concerns that the U.S economy is heading for recession. Elsewhere, the Dollar may come further pressure following a report on the U.S Current Account balance, which is widely expected to show that the deficit has widened in the second quarter from $208.7 to $215 Billion. The trade deficit reached a record level in July at $68 Billion and therefore the report this afternoon on net capital inflows will take on added significance as forecasters anticipate a drop towards $70 Billion in July, which will just about cover the ever widening gap in goods and services.

There was a distinct lack of fundamental data released in the Euro-zone last week and as a result, the Euro suffered against the majors, falling back towards the year high at 1.4850 against the Pound. However, the focus this week will largely fall on German consumer price inflation and the ZEW Expectations index tomorrow, which is widely expected to show a further decline in business confidence in Europe's largest economy. The German CPI may also decline in August with core prices expected to drop in the face of falling oil prices while the scheduled increase in value-added tax, set to be introduced at the start of 2007, is expected to weigh on consumer spending. There is some significant data released this morning in the Euro-region with industrial production set to remain unchanged at an annual rate of 4.3% year-on-year in July. In the last week, a host of ECB policy makers have publicly stated their concerns over persistently higher inflation and also indicated that monetary tightening may continue into 2007.

There is a sparse supply of economic data released this week in the UK with the focus falling on the minutes of the Bank of England's last policy meeting where the MPC kept interest rates on hold at 4.75% following a surprise increase in August. It is widely anticipated that the 8-strong committee voted unanimously to keep rates on hold last month but the minutes should provide an insight into the prospects of a further rate hike before the end of the year and any suggestion of this is likely to lend a boost to Sterling. Elsewhere, the CBI industrial trends survey may reflect the dramatic fall in oil prices over the last month, which will have a positive effect on input costs and suggest greater confidence in UK manufacturing.

Data Released 18th Sept

EU 10:00 Industrial Production (July)

U.S 13:30 Current Account (Q2)
U.S 14:00 TICs - Net Capital Inflow (July)
U.S 18:00 NAHB Housing Index (September)

witten by Adam Solomon

Following the unexpected increase in UK consumer price inflation earlier this week, the Pound has been making steady gains against the majors, closing back above 1.4800 against the Euro and gaining a further 0.7% versus the Dollar at 1.8900. The positive sentiment surrounding Sterling continued yesterday following a report on UK retail sales that showed a rise of 0.3% from July, which was largely in line with expectations although the core rate rose by 4.3% year-on-year with forecasters anticipating a more modest increase towards 4.1%. The Pound rallied on the release of the data as a rebound in consumer spending together with renewed inflationary pressures will surely lead to a further tightening of UK interest rates later this year as growth in the economy continues to accelerate. In addition, the RICS house price balance continued the current trend of optimism surrounding the UK housing market as the survey came out slightly ahead of expectations. Without any significant economic data released this morning in the UK, the market will turn to the CBI Industrial Trends survey next week for further evidence of a pick-up in industrial production and manufacturing output, which would also add weight to calls for a further quarter-point rise in interest rates.

The lack of fundamental data released this week in the Euro-zone has continued to weigh on the single currency although any downside weakness was limited yesterday following a press conference from the chairman of the European Central Bank, Jean-Claude Trichet who reiterated his hawkish rhetoric for a further rise in Euro-zone interest rates next month. The ECB has been notoriously transparent this year in their intentions to raise rates four times since December and yesterday Trichet reiterated that the Central bank will act in accordance with "strong vigilance" in order to bring inflation back under control. Inflationary pressures continue to mount in the twelve nations sharing the Euro and overnight, a report on labour costs rose by more than expected in August, adding to the case for higher interest rates. There is some significant economic data released this morning in Europe with the Consumer Price Index widely expected to increase by 0.1% in August following the first decline in six months in July. Higher energy costs accompanied by a steady recovery in regional demand are expected to keep Euro-zone inflation above the central bank's 2.0% target at an annual rate of 2.3%. The Euro may receive a boost this morning if the report on consumer price inflation exceeds expectations as it would cement the prospect of a further rate hike next month.

The Dollar continued to trade down yesterday, falling a further 0.4% against the Euro despite a seemingly strong report on U.S retail sales, which briefly pushed the dollar higher as sales increased by 0.2% in August following robust growth in July. However, the core figures showed that sales dropped below the consensus 0.3% year-on-year last month as weakening consumer confidence and a slowdown in the housing market will continue to hamper sales growth in the coming months. However, the weekly jobless report provided some good news for the economy as jobless claims rose by less than expected in the week ending the 9th September and claims have dropped consistently for the last five weeks, which provides an insight into the U.S labour market ahead of the non-farm payrolls report in the first week of October. Without doubt, the focus today in terms of economic data will be the report on U.S consumer price inflation as investors look for any signs of a revival in monetary tightening. The index is widely expected to increase by 0.2% in August, excluding food and energy, which would provide a further indication that inflationary pressures are easing following a significant decrease in petrol prices in the last month. The Dollar may come under further pressure against the majors this afternoon as industrial production is expected to slow in August, showing only modest growth of roughly 0.2% following an increase of 0.4% in July.

Data Released 15th September

EU 10:00 Harmonised Consumer Price Index (August)
EU 10:00 Trade Balance (July)

U.S 13:30 Consumer Price Index (August)
U.S 14:15 Industrial Production (August)
- Capacity Utilisation
U.S 14:45 Michigan Sentiment (Sept Prelim)

written by Adam Solomon

The market remained relatively unchanged yesterday amid a sparse supply of economic data released both in Europe and the States. Although, the very recent positivity surrounding the Pound continued following a report on UK unemployment and average hourly earnings, which showed that the number of people out of work and claiming benefits unexpectedly fell for a second month in August. The claimant count fell by 3,900 compared with July to an annual rate of 950,100 with the unemployment rate unchanged at 3.0%, which will only add to speculation of another rate increase from the Bank of England before the turn of the year. In addition, growth in wages including bonuses grew at an annual rate of 4.4% in the 3 months to July, which was slightly ahead of expectations. The BoE will concentrate on the UK labour market as a good indication of future inflation trends and following a report on consumer prices this week, it looks increasingly likely that interest rates will rise to 5.0% by the end of 2006. The Pound has been creeping back towards the major resistance level at 1.4800 against the Euro and we may see further gains this morning following the release of the RICS house price index where prices are widely expected to remain relatively unchanged in August. While elsewhere, UK retail sales may of increased by 0.4% last month with the annual growth rate accelerating to 4.2% as consumer sentiment continues to look strong despite a surprise rise in UK rates last month.

There has been a fundamental lack of economic factors driving the Euro this week, which has left the single currency open to attack but there was some data released yesterday that put the Euro under further pressure against the dollar and particularly against the Pound as German and French inflation unexpectedly slowed in August following a sharp drop in oil prices in the last month. Consumer prices in Europe's largest economy rose 1.8% year-on-year in August after increasing to 2.1% in July while the inflation rate also fell in France, suggesting that growth in the European economy may not be accelerating as fast as previously anticipated. The European Central Bank are widely expected to raise interest rates from the current 3.0% in their next meeting scheduled for the first week in October and drop in consumer prices last month is unlikely to change that sentiment.

The Dollar has been under pressure over the last 24hrs following the worse than expected trade report in July, where the deficit in goods and services increased to a record level at $68 Billion. However, the Dollar remained relatively unchanged against the Pound at the close last night, hovering around 1.8750 following a lack of significant data released in the States. However, we may see some market volatility over the course of the day with U.S retail sales expected to increase by 1.0% excluding the sales of automobiles in August. Elsewhere, export prices are likely to increase by less than forecast following the overwhelming deficit in trade in July while import prices may exceed expectations, reaching an all time high in the previous month.

Data Released 13th September

UK 09:30 Retail Sales (August)
UK 00:01 RICS House Price Balance (August)

U.S 13:30 Retail Sales (August)
U.S 13:30 Export / Import Prices (August)
U.S 13:30 Initial Jobless Claims (w / e 9th September)
U.S 15:00 Business Inventories (July)

written by Adam Solomon

The Pound was given a timely reprieve yesterday and made significant gains against the majors, firming 0.6% against the Dollar to close around 1.8750 and a further 0.4% versus the Euro as UK inflation unexpectedly quickened in August to reach the highest level in nine years. Consumer prices rose to 2.5% year-on-year last month from 2.4% in July, which suggests that the Bank of England still have the capacity to raise UK interest rates this year. The core measure of inflation, excluding food and energy, rose to an annual rate of 1.1% and August was the fourth consecutive month that the Consumer Price index remained above the government's 2.0% target. Therefore, it looks increasingly likely that UK interest rates will be lifted again in the fourth quarter with many economists pricing in a probable rate hike in November. The UK economy has accelerated at the fastest pace in two years in the second quarter of 2006 and together with higher inflation caused by record oil prices, the BoE will need to increase borrowing costs in order to bring inflation back under control. However, the Pound may come under some pressure this morning with UK unemployment expected to rise to the highest level in over four years in August with the number of people out of work and claiming benefits rising by 4,000 in July to an annual rate of 961,000, the most since December 2001.

The Euro declined against the Pound yesterday and also fell fractionally against the Dollar amid a distinct lack of economic data released in the Euro-zone as the focus this week falls on the harmonised consumer price index and the trade data on Friday. However, following comments from two ECB governing council members this week regarding a more aggressive stance towards monetary tightening, we can expect the Euro to remain relatively strong in the build up to the next ECB rate announcement in the first week of October.

The U.S Dollar has been making significant gains against the Pound over the last week on concerns that the Federal Reserve will continue raising interest rates in the coming months as inflation shows signs of accelerating. However, the dollar lost ground yesterday on the release of the U.S trade report, which showed that the deficit in good and services widened by much more than anticipated in July to a record $68 Billion as imports reached an all-time high while exports declined for the first time in five months despite a significantly weaker dollar. It seems that the trade gap in the States will continue to widen in the coming months despite evidence that economic growth is slowing as consumer spending continues to influence demand for overseas products. Imported goods rose by 1.0% in July while exports declined by 1.1% with many in the U.S blaming China's refusal to revalue their currency for the swelling of the deficit. However, the Dollar remained largely unchanged against the majors at the close as the record deficit will have little influence on interest rate expectations this year. Although, can also be argued that the Fed desire a weaker Dollar in order to make U.S exports more attractive to foreign investors and therefore, a rise in rates would be unlikely as it would promote significant dollar strength.

Data Released 13th September

UK 09:30 Unemployment (August)
UK 09:30 Average Earnings (3 months to July)

written by Adam Solomon

The Pound came under further pressure yesterday, dropping 0.3% against the Euro and falling 0.2% versus the U.S Dollar after a report on the UK global trade balance showed that the deficit in goods and services actually widened in July. A sharp decline in exports, partly due to the underlying strength of Sterling, contributed to a shortfall of £6.33 Billion, which was slightly larger than forecast while exports out of the UK fell a staggering 13% from June. Therefore, it looks increasingly unlikely that trade will be unable to support economic growth this year and together with a softer than expected report on producer price inflation, the Pound continued to weaken. The producer price index came out below expectations with a significant monthly decline in input prices suggesting that inflation may have moderated in the third quarter, alleviating some of the pressure on the Bank of England to continue raising interest rates this year. Therefore, the inflation data released this morning in the UK will take on added significance and if the consumer price index has mirrored the PPI in the month of August, we can expect the Pound to weaken further as expectations shift away from a probable rate hike in November. Consumer prices are widely expected to have increased to an annual rate of 2.4% in August, which would be largely unchanged from July and would suggest that UK inflation continues to accelerate despite a surprise rise in interest rates last month.

There was a distinct lack of significant data released in the Euro-zone yesterday although the single currency continued to make further gains against the Pound and firmed an additional 0.1% against the Dollar following comments from ECB member Jurgen Stark, who emphasised the need for a further tightening of monetary policy. In his statement, Stark reiterated that Euro-zone inflation would remain above the Central Bank's target this year and that higher interest rates would not have a damaging effect on economic recovery. In addition, another member of the governing council publicly stated his belief that economic growth and inflation may have exceeded initial forecasts both for this year and in 2007, leading to a further tightening of interest rates. The chairman of the ECB, Jean-Claude Trichet has already given a strong indication to the market that Euro-zone interest rates will be lifted early next month and we can therefore expect the Euro to make further gains over the coming weeks.

The renewed appetite for the U.S Dollar has been built on speculation that the Federal Reserve may not be finished in raising U.S interest rates this year after a report on labour costs suggested inflation was accelerating despite 17-consecutive rate hikes in under two years. The Dollar continued to make gains yesterday ahead of an important week of economic data including retail sales, consumer price inflation and the trade data released this afternoon. Therefore, the market will be looking for confirmation from the CPI on Friday that inflation has exceeded expectations in August and if prices have risen by more than the projected 0.2%, we can expect the Dollar to strengthen further ahead of the next FOMC rate announcement on the 20th September. The focus today in terms of economic data will be the release of the U.S trade deficit, which is widely expected to have widened to $65.5 Billion in the month of July, the third biggest on record, primarily due to a sharp rise in crude oil prices and an increase in imported goods into the States.

Data Released 12th September

UK 09:30 Retail Price Index (August)
- Consumer Price Index

U.S 13:30 Trade Balance (July)

written by Adam Solomon

Following on from last week, the Pound continued to weaken against the major currencies as the political fiasco surrounding Tony Blair's resignation reached fever pitch and the renewed interest rate speculation in the States helped push the Dollar. In addition, the Bank of England kept interest rates on hold at 4.75% this month despite a report from the national institute of social and economic research, which showed that inflation had accelerated in the UK in the three months to August. There is a plethora of significant economic data released this week in the UK with the focus falling on the inflation gauges out this morning and tomorrow. The Producer Price Index is widely expected to show that output prices rose by 0.2% in August while the Consumer Price Index released tomorrow may show that the year-on-year inflation rate held steady at 2.4% last month. However, it is widely anticipated that UK inflation will reach 3.0% over the winter months, primarily due to a significant increase in energy prices this year and therefore, the BoE will need to raise UK interest rates in an attempt to bring it back under control. The Pound may receive a much needed boost this morning with the release of the monthly trade data and forecasters are anticipating that the deficit in goods and services actually narrowed in July to a figure around £6.2 Billion.

The Euro made significant gains against Sterling last week due to a host of positive economic factors, which further emphasised the need for higher interest rates in the Euro-zone. Firstly, a rise in exports out of Germany and growth in the industrial sector has led to speculation that the largest economy in Europe will grow at the fastest pace in six years in 2006 while several ECB policy makers have expressed their concerns over higher inflation and the need for a further tightening of monetary policy. The is a distinct lack of fundamental data released in the Euro-region this week with the focus falling on the Harmonised consumer price index, which is widely expected to show that inflation remain unchanged from the flash estimate of 2.3%.

The main theme from last week was undoubtedly the renewed appetite for the U.S Dollar as a significant rise in labour costs in August has caused concerns that inflation will continue to accelerate this year despite the Fed's prolonged campaign of monetary tightening, which spanned 17-rate hikes in little under two years. The Dollar has been under intense pressure in the last 6-weeks following comments from the chairman of the Federal Reserve, Ben Bernanke, where he hinted that economic growth would slow in the second half of the year and inflation would moderate, which of course leads to speculation that interest rates will be kept on hold at 5.25% with the next move likely to be a cut. Therefore, the host of inflation and consumer data released in the later part of the week will take on added significance as the market looks for direction on whether the Fed will raise rates on the 20th of September. The consumer price index is widely expected to show a rise of roughly 0.3% in August with the core rate, excluding food and energy, up 0.2% and anything higher will create further tension surrounding U.S interest rates and may help the dollar make further gains against the Pound and the Euro.

Data Released 11th Sept

UK 09:30 DCLG House Prices (July)
UK 09:30 Producer Price Index (August)
- Output

UK 09:30 Global Trade Balance (July)

written by Adam Solomon

The focus yesterday fell on the Bank of England interest rate announcement where the MPC elected to hold UK interest rates at 4.75% in September following a surprise increase last month. Economic growth has accelerated at the fastest pace in over two years in the second quarter of this year, which has prompted the government to raise their growth forecasts and inflation expectations for 2006. UK inflation is still well above the central bank's target of 2.0% and therefore, speculation continues to intensify that the BoE will raise interest rates once more before the turn of the year with many economists pricing in a further hike towards November. It was widely expected that UK interest rates would remain on hold yesterday as two consecutive hikes would of put the economy under great strain and as a result, the Pound remained largely unchanged against the majors on the announcement but closed around 1.8700 versus the Dollar last night. The political tension surrounding Tony Blair's resignation continues to weigh heavily on Sterling sentiment as the primeminister seems reluctant in naming the date of his departure. There was some significant economic data released in the UK yesterday, which provided yet more evidence that rise in rates is likely over the coming months as economic growth accelerated in the 3 months to a August according to a report from the national institute of social and economic research.

The Euro remained largely unchanged against the Pound yesterday despite a better than expected report on German industrial production, which expanded by 1.2% in July following a modest decline the previous month. Year-on-year orders jumped 4.7%, significantly higher than expected and provides further evidence that the German economy will grow at the fastest pace since 2000 this year, which only adds to speculation that the ECB will raise interest rates at least once more in 2006. There is a distinct lack of fundamental data in Europe or the UK today although the German trade balance has already been released and has showed that exports rose by more than expected in July as global economic growth increases demand overseas. Exports rose a revised 1.4% in July while forecasters had anticipated a rise in sales abroad of 0.6% from June. The trade surplus was largely unchanged but growth in German exports has fuelled company spending this year, leading to more jobs and therefore more disposable income to boost consumer sentiment.

The sentiment surrounding the U.S Dollar has shifted dramatically this week following a report on unit labour costs, which suggested that the Federal Reserve will have the scope to raise interest rates once more this year in the face of rising inflationary pressures. The Dollar has made significant gains, particularly against the Pound this week and that theme continued yesterday as the weekly jobless report showed that the number of people out of work and claiming benefits actually narrowed slightly to 310,000 claims in the week ending 2nd September. In addition, U.S wholesale inventories increased by 0.8% in July while sales rose a modest 0.4%, which provides an insight into next week's retail sales data.

Data Released 8th Sept

U.S 20:00 Consumer Credit (July)

written by Adam Solomon

The positive sentiment surrounding the U.S Dollar continued yesterday amid a host of strong economic data that has rekindled interest speculation in the States as inflation shows signs of accelerating, which has historically prompted the Federal Reserve into action. Firstly, a report from the U.S labour department showed that nonfarm productivity rose 1.6% in the revised estimate for the second quarter, which was largely in line with expectations after rising 1.1% in the first quarter. As a result, unit labour costs have risen 4.9%, which was significantly higher than the consensus forecast and has fuelled speculation that the Fed have the capacity to keep raising interest rates as the American consumer has more disposable income, which should boost spending. The Dollar rose by a further 0.3% against the Euro and 0.7% versus the Pound as we closed towards 1.8800. However, it can be argued that the recent appetite for the Dollar may not be entirely justified as the incredibly strong economic data does not automatically guarantee a further rise in U.S rates to come and therefore, Dollar sellers may be well advised to take advantage of this unlikely rally. Elsewhere, the ISM's report on non-manufacturing was also surprisingly strong with the headline measure rising despite each of the nine components that make up the index falling.

The Euro also took advantage of the political tension in the UK by gaining a further 0.4% against Sterling despite an apparent lack of significant economic data in the region. However, a member of the ECB's governing council, Axel Weber, reiterated comments from the chairman last week, signalling that Euro-zone interest rates are to set to rise at least once more over the coming months with the benchmark rate expected to rise to 3.5% going into next year. Despite a worse than expected report on manufacturing and retail sales in the Euro-zone earlier this week, the Euro has continued to make gains against the Pound. There was some positive data released in Germany yesterday as factory orders rose by 1.8% in July, adding to speculation that the export market continues to look robust, which is likely to prompt the Central bank into action next month and lift interest rates in the face of rising inflationary pressures and accelerating economic growth. There is a distinct lack of fundamental data released in the region this morning with the focus falling on the ECB's monthly bulletin, which is widely expected to emphasise the sentiment for a further tightening interest rates next month.

The Pound has come under intense pressure this week thanks largely to the political tension surrounding Tony Blair's impending resignation although the data released has suggested the UK economy is in good shape with retail prices accelerating to the fastest pace in two years. However, the Pound made further losses against the major currencies yesterday as a report from the Nationwide Building Society suggested that consumer confidence had slumped in August in the face of rising unemployment and higher interest rates. There was some positive news for Sterling yesterday that failed to lend a boost to the ailing currency as the latest surveys on industrial production and manufacturing output continued to show signs of growth in July, which provides an indication that economic growth will continue to accelerate despite the BoE's surprise interest rate hike last month. The focus today will fall heavily on the Bank of England's September interest rate announcement with the market anticipating a 'no change' in policy this month and we will have to wait until the 20th of September to ascertain how the monetary policy committee voted. However, the national institute of economic and social research has released their latest index on UK Gross Domestic Product this morning, which shows that economic growth accelerated by 0.8% in the three months to August, adding to the case for higher interest rates.

Data Released 7th Sept

UK 12:00 BoE Rate Announcement

EU 09:00 ECB Monthly Bulletin

GER 11:00 Industrial Production (July)

U.S 13:30 Initial Jobless Claims (w/e 2nd Sept)
U.S 15:00 Wholesale Inventories (July)

written by Adam Solomon

The Pound slumped against the majors yesterday, slipping 0.7% against the Dollar and a further 0.2% versus the Euro following a mixed bag of UK economic data that put Sterling under pressure in early trading. Firstly, the CIPS services survey dropped to a reading of 56.7 in August, which was significantly lower than expected and the fourth consecutive drop in the index since May, possibly signalling a slowdown in the sector. The robust growth in services this year would of been instrumental in the Bank of England's decision to lift UK interest rates last month and with input and output prices rising sharply, the BoE are likely to lift rates once more before the turn of the year with the next scheduled announcement this Thursday. In addition, the British Retail Consortium published its monthly report on same store sales yesterday with the survey showing a significant drop in retail activity in August with sales dropping to 2.5% year-on-year, which was largely in line with expectations following the robust growth in sales in July.

This coincides with a report from the Nationwide building society, which has only added to the negative sentiment surround the Pound as UK consumer confidence declined in August following the BoE's decision to lift interest rates in August as high unemployment and rising mortgage rates hampers consumer spending. Therefore, it now looks increasingly likely that Euro buyers would be well advised to take advantage of the current rate while we remain above 1.4700. The focus this morning in terms of economic data will be UK industrial production for July, which is widely expected to increase by 0.2% from the previous while manufacturing output may also post a moderate increase.

The Euro made significant gains against Sterling yesterday despite a damning report on European service industries, which represents the biggest part of the economy, expanded at the slowest pace in Seven months in August following a rise in Euro-zone interest rates. The purchasing managers index on the twelve nations sharing the Euro fell to a reading of 57.1 last month, which was lower than expected after accelerating to the fastest pace since 2000 earlier this year. Since then, manufacturing output, business and consumer confidence has begun to decline after the ECB suggested that a further tightening of interest rates was likely before the end of the year as the Central bank attempts to contain inflation. However, despite the report the Euro rallied against the Pound to close at the lowest level in nearly a month and with the ECB monthly bulletin likely to reiterate the bullish comments from the ECB last week, we can expect the Euro to make further gains in the build-up to the next monetary policy announcement next month. In addition, the single currency may receive a further boost today as manufacturing orders in Germany is widely expected to increase by 0.8% in July.

The Dollar has made gains against both the Euro and the Pound in the last 24hrs, dropping by nearly a point against the Dollar towards 1.8900 and a further 0.5% versus the Euro despite an apparent lack of any significant data in the early part of the week. There is some significant economic data released in the States this afternoon with Nonfarm productivity expected to increase to 1.5% in the revised estimate for the second quarter while unit labour costs may decline to an annual rate of 3.8% from 4.2% in the first. In addition, the focus this week in terms of fundamental data will also be released this afternoon with the ISM's non-manufacturing index widely expected to post a modest increase in August with a reading of 55.0 anticipated from 54.8 in July. The market is currently anticipating that the Federal Reserve will hold interest rates at 5.25% for the remainder of this year and therefore, the Fed's Beige Book will take on added significance this evening as we look for further evidence that the U.S economy is slowing while inflationary pressures have moderated going into the fourth quarter.

Data Released 6th Sept

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

GER 11:00 Manufacturing Orders (July)

U.S 13:30 Nonfarm Productivity (Q2 Revised)
- Unit Labour Costs

U.S 15:00 ISM Non-manufacturing (August)
U.S 19:00 Fed Beige Book Published

written by Adam Solomon

The Euro made significant gains against the majors yesterday, firming a further 0.2% against the Dollar and the Pound on the release of some better than expected inflation data, which only adds to speculation that the ECB will lift interest rates a further 50 basis points before the turn of the year. The Producer Price Index increased by 0.6% in July, which was slightly ahead of expectations, while the annual rate rose to 3.4%, a 10-year high, from 3.0% the previous month as significantly higher energy prices increased producer costs. There is some important economic data released this morning in the Euro-zone with the Purchasing Manager's Index for European services widely expected to drop slightly in August to a reading of 57.6 with a figure above 50 indicating robust growth in the sector. In addition, Euro-zone retail sales should provide an insight in terms of private consumption as sales in Germany decreased significantly in July thanks largely to the conclusion of the World Cup.

The Pound came under pressure yesterday despite a better than expected report on PMI Construction in the UK, which indicated robust growth in the sector last month while the data also indicated that the housing market continues to expand leading to a better overall performance for UK economic growth in the third quarter. Sterling has been gaining on speculation that the Bank of England will lift UK interest rates once more before the turn of year, particularly after Chancellor Brown raised his growth forecast and inflation expectations early last week. However, the Pound seemed unmoved by the positive data and remained relatively unchanged against the Dollar from Friday's close around 1.9050. There is some significant data released in the UK this morning with the CIPS Services Survey widely expected to decline to a reading of 57.6 in August. In addition, the Pound may come under further pressure this morning from the BRC retail sales survey with forecasters anticipating a drop towards 2.4% year-on-year in August, which will provide an insight into the domestic economy.

The Dollar remained relatively unchanged yesterday as the U.S celebrated Labour Day in the States and there is also a sparse supply of economic data released this afternoon but the Dollar is making some headway against Sterling this morning, dropping under 1.9000 for the second time in a week. However, any short-term Dollar gains will be limited as it looks increasingly likely that the Federal Reserve will continue to hold interest rates at 5.25% for the remainder of this year as economic growth continues to moderate while inflation has also showed signs of slowing. Therefore, the data released will take on added significance with the focus falling on the ISM non manufacturing index tomorrow along with the publication of the Fed's beige book, while provides an insight into the next FOMC announcement on the 20th September.

Data Released 5th September

UK 09:30 CIPS Services Survey (August)
UK 11:00 BRC Retail Sales Survey (August)

EU 09:00 PMI Services (August)
EU 10:00 Retail Sales (July)

written by Adam Solomon

Following on from last week, the Dollar was given a temporary reprieve on Friday as the monthly U.S job report showed that the economy added more jobs than expected in August at 128,000 while the unemployment rate fell towards 4.7% from 4.8% in July, suggesting that a strong labour market will sustain consumer spending and spur economic growth in the face of a declining housing market. However, any short-term Dollar gains were limited as the ISM manufacturing index dropped by more than anticipated in August and we closed back above 1.9000 versus the Pound. There is a particularly light calendar this week in terms of economic data released in the States with the focus falling on the Non-manufacturing index, which could point to a further slowdown in the service sector, and the Fed's Beige Book should provide some insights ahead of the next FOMC rate announcement on the 20th September.

The Pound has made significant gains against both the Euro and the Dollar as the market looks for further evidence that the Bank of England will lift UK interest rates above the current 4.75% following the surprise increase last month. The UK economy has expanded at the fastest pace in two years in the second quarter, which has forced the central bank to raise its growth forecast and inflation expectations for 2006. Therefore, the focus this week will fall heavily on the BoE interest rate announcement on Thursday and we expect the monetary policy committee to keep interest rates on hold at 4.75% this month with the minutes of the meeting published on the 20th September. However, it does look increasingly likely that the BoE will raise UK interest rates at least once more before the turn of the year with the market factoring in a good probability that a further 25 basis point increase will take place in November that would push the benchmark interest rate to 5.0%. In terms of economic factors, there is a host of significant data released in the UK this week with industrial production and manufacturing output set to rise by roughly 0.2% in July, while elsewhere, the BRC retail sales survey should provide an indication of the strength of the domestic economy.

The Euro has come under increased pressure against the Pound and continues to trade in a tight range versus the Dollar despite a clear indication from the ECB last week that Euro-zone interest rates are set to rise further next month. The Central Bank elected to hold rates at 3.0% in the monthly announcement last week but the chairman, Jean Claude Trichet, signalled a further tightening of monetary policy in October saying that "strong vigilance" would be needed in the coming months. Historically, this type of language has been used by Trichet as a trigger to the market that interest rates are set to increase the following month but surprisingly, the Euro failed to make any headway against the majors. There is some significant data released this morning in the Euro-zone with the Producer Price Index, which provides a measure of inflation and may show that prices increased by 0.5% in July with the annual rate unchanged at 5.8%.

Data Released 4th September

U.S Market Holiday - Labour Day

EU 09:00 Producer Price Index (July)

written by Adam Solomon

The Euro came under increased pressure yesterday, dropping by a further 0.3% against the Dollar and 0.2% versus the Pound as the ECB elected to hold interest rates at 3.0% for September despite economic growth accelerating to a six-year high earlier this month. After four rate hikes this year, the Central Bank decided to keep rates unchanged, which was widely expected and in the accompanying press conference, the chairman, Jean-Claude Trichet signalled that a further tightening of monetary policy was likely in October. In his statement, Trichet reiterated that "strong vigilance" would be needed over the coming months and historically, this terminology has been used as a trigger by the ECB to inform the market of an impending rate hike the following month. However, after an initial knee-jerk reaction the Euro resumed it's downward trend, closing well above 1.4800 against the Pound.

There was also some significant economic data released yesterday that failed to boost the single currency with German Retail Sales dropping by more than expected in July following the conclusion of the World Cup in the region and record temperatures that kept consumers off the high-street. Sales fell 1.5% against expectations of a drop around 0.4%. In addition, confidence in the European economy also declined by more than anticipated in the month of August after rising to the highest level since 2001 in July. It seems apparent that rising oil prices and higher interest rates may weigh heavily on economic expansion this year as the sentiment index fell to reading of 106.7, the first decline in 9-months. Finally, the Flash estimate Consumer Price Index came in largely in line with expectations at an annual rate of 2.3%, which was still above the ECB's 2.0% target and may prompt the Central Bank to continue raising interest rates a further 50 basis points this year.

The positive sentiment surrounding the Pound continued yesterday as UK house price inflation accelerated at the fastest pace in a year in August according to the Nationwide Building Society with the average cost of a UK home rising by 0.8%, which was well above expectations while the annual rate increased to 6.6%, the biggest rise since April 2005. Following the dramatic rise in UK mortgage approvals earlier this week, the seemingly buoyant housing market will give the Bank of England scope to raise UK interest rates once more this year from the current 4.75%. Elsewhere, UK consumer confidence dropped sharply in August to a reading of -8 against expectations of a more modest fall towards -5, which is slightly surprising considering the robust growth in retail sales in the last month. Although, higher petrol prices and rising mortgage rates may discourage consumers from returning to the high-street. There is some significant data released in the UK this morning with the CIPS Manufacturing Survey likely to stay relatively unchanged in August and may increase by a modest 0.1 as UK manufacturing continues to show signs of growth with output rising to the highest level since 2004 earlier this year.

The Dollar remained relatively unchanged at the close of trading last night despite a softer than expected report on U.S personal income and expenditure. Consumer Spending in the States rose by the most since January last month, rising by 0.8%, which was largely in line with expectations although the Fed's preferred gauge of U.S inflation posted the smallest gains this year. The modest rise of 0.1% reiterates comment from the Federal Reserve that the economy has peaked this year with economic growth moderating in the face of significantly higher interest rates. The report will add fuel to speculation that the Fed won't raise rates again this year but the Dollar looked unfazed and made unlikely gains against the Euro as a sharp fall in oil prices will undoubtedly improve the ever-widening U.S current account deficit. In addition, the Dollar received an unexpected boost as manufacturing in the Chicago area declined by less than anticipated in August while elsewhere, factory goods orders came out as expected with orders excluding transportation at 1.1% in July. The focus today in terms of economic data will be the monthly U.S job report this afternoon with investors anticipating that the economy added 125,000 jobs in August. If the Nonfarm Payrolls report comes in under expectations, we can expect the Dollar to come under further pressure against the Pound.

Data Released 1st September

UK 09:30 CIPS Manufacturing Survey (August)

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

U.S 13:30 Non Farm Payrolls (August)

- Unemployment / Average Hourly Earnings

U.S 14:45 Michigan Sentiment (August Final)
U.S 15:00 ISM Manufacturing (August)
U.S 15:00 Construction Spending (July)

written by Adam Solomon