Daily Insight

Following on from last week, the Pound continued to rise against the majors, achieving a new two and a half year high versus the Euro and consolidating the recent gains against the Dollar as UK retail sales rose the highest level in 18 months. Faster economic growth and a significant rise in personal income sent sales rising 1.1% in December, the most since June 2005 while the core rate soared 3.7% from a year earlier. The report will only fuel further speculation that consumer spending will remain relatively positive despite three quarter-point rate increases since August last year. The focus this week in terms of economic data will fall heavily on the minutes from the Bank of England's last policy meeting where the MPC surprisingly elected to lift interest rates to 5.25%. It is widely anticipated that the eight-strong committee unanimously voted to hike rates in January but the tone and language of the report will be heavily scrutinized for any indication of a further rise in interest rates in February or March. The Pound has made gains against the majors this morning as the Rightmove survey showed that UK house prices rose 0.5% in January and it seems that two quarter-point rate increases last year has done little to dampen demand.

The Euro continued to decline against the majors last week as Euro-zone inflation remained unchanged at 1.9%, which further underlines the rather dovish rhetoric from the European Central Bank with regards a further tightening of European interest rates. The single currency may come under further pressure this week following a sparse supply of economic data released in the Euro region with the focus falling on the German Ifo index into business confidence. The index is expected to rise modestly in January as fears over the impact of the value-added tax increase continue to ease although German inflation may rise considerably in the meantime. However, a gauge of producer price inflation has already been released this morning and prices for December have slowed following a significant drop in energy prices over the same period.

The Dollar ended the week on a positive note, firming an additional 0.3% against the Euro as U.S consumer confidence rose to a three-year high in the preliminary estimate for January. A significant drop in energy prices and a strengthening labour market pushed wages higher, which has obviously had a positive effect on confidence and retail sales that should prevent the U.S economy from a 'hard landing' this year. There is a distinct lack of fundamental data released in the States this week with the focus falling on the housing sector. In the past week, speculation has continued to mount that the sustained slump in the housing market has finally peaked and therefore, existing and new home sales will be watched closely for a further indication of a rebound in the sector.

Data Released 22nd January

U.S 15:00 Leading Indicators (December)

written by Adam Solomon