Daily Insight

The Pound continued to slip against the Euro yesterday and remained relatively unchanged versus the Dollar despite a surprisingly positive report from Hometrack plc, which showed that UK house price inflation had reached the fastest pace in over three years in January. However, the Pound has rebounded sharply overnight as a separate gauge on the UK housing market showed that prices jumped higher than the anticipated 0.8% this month and that will only fuel speculation of a further rise in interest rates in March. Overnight, the Pound has bounced back above the significant support level at 1.9600 against the Dollar and that trend may continue this morning following a report on UK mortgage approvals, which are expected to remain at an elevated level for December.

The Euro managed to hold firm against the Dollar yesterday and made modest gains versus the Pound despite the apparent lack of any economic data released in the Euro-zone. That trend is set to continue this morning with the focus this week falling on the Flash estimate for consumer prices tomorrow, which may show inflation back above the ECB's 2.0% target as the introduction of the VAT increase in Germany takes effect. If the report comes out ahead of expectations then the possibility of further rise in European interest rates will look increasingly likely in March as policy makers continue to monitor developments to price stability. The single currency may also find support later this week with the release of the Purchasing Manager's index on European manufacturing, which together with the EC sentiment surveys are expected to show strong growth over the past month.

The Dollar managed to consolidate the recent gains made against both the Euro and the Pound yesterday ahead of a significant week in terms of economic data. Following a substantial rise in durable goods orders and new home sales last Friday, the positive sentiment surrounding the Dollar may continue this afternoon as U.S consumer confidence is expected to rise to the highest level in over four years this month. Following a well publicised slump in the U.S housing market and a slowdown in manufacturing, consumer confidence and retail sales have been one of the principle drivers of economic growth led by the buoyant expansion of the U.S labour market. The Conference Board's index may rise to the highest reading since May 2002 in January but that is not expected to prompt the Federal Reserve to raise U.S interest rates in their monthly announcement tomorrow.

Data Released 30th January

UK 09:30 Mortgage Approvals (December)

U.S 15:00 Consumer Confidence (January)

written by Adam Solomon