Daily Insight

The Euro continued to slide against the majors yesterday, holding near a six-week low versus the Dollar and falling an additional 0.4% versus the Pound following a surprisingly negative report on German retail sales, which unexpectedly fell 0.3% in November. In previous reports, highstreet spending has remained relatively strong over the past quarter but it seems concerns are growing that the introduction of the VAT tax increase will reduce disposable income and therefore weigh on consumer sentiment. The focus today in terms of economic data will fall on industrial production in Germany and the consensus forecast is for a 1% rise in output in November as growth in exports and increased investment has helped propel economic growth in Germany at the fastest pace in six years.

The Pound has made robust gains against both the Euro and the Dollar over the past 24hrs as speculation continues to increase that the Bank of England intend to raise UK interest rates next month. Despite a fundamental lack of economic data released in the UK yesterday, the Pound gained 0.7% versus the Dollar and that trend may continue this morning following a report from the British Retail Consortium. The BRC survey is expected to show a sharp pick-up in retail sales in December as consumers hit the highstreet to prepare for the Christmas period. Sales are expected to jump 2.5% year-on-year last month after a revised 0.5% increase in November and therefore, the survey may suggest that record employment and a strong housing market will support consumer spending.

Over the past week the Dollar has made unexpected gains against the majors as speculation continues to intensify that the Federal Reserve will adopt a neutral stance and hold U.S rates at 5.25% over the first half of 2007. Initially, the positive sentiment surrounding the Dollar continued yesterday and support for the U.S currency came from Oman, the fifth biggest oil producer in the Arabian Gulf, who said it favoured keeping most of its oil reserves priced in Dollars. However, by the close of trading last night the Dollar had relinquished much of the early gains following a government report on consumer sentiment, which seemed to suggest that growth in spending won't be sustained in 2007.

Data Released 9th June

GER 11:00 Industrial Production (November)

UK 11:00 BRC Retail Sales Survey (December)

written by Adam Solomon