Daily Insight

The positive sentiment surrounding the Pound continued yesterday as the Rightmove survey showed that UK house prices rose 0.5% in January while the annual rate was up 13% from this stage last year, which is the fastest growth since October 2004. Despite a further tightening of UK interest rates it seems the sustained and unrelenting growth in the property market will continue this year and that will lead to increased speculation that interest rates will rise beyond the current 5.25%. As a result, the Pound advanced 0.4% against the Dollar to open this morning above 1.9800 and we also achieved a fresh two and a half year high versus the Euro by the close of trading last night. In terms of economic data, Sterling may receive a further boost this morning as the Confederation of British Industry releases their monthly survey, which is expected to show further growth in production and manufacturing output.

The Euro has come under increased pressure over the past few weeks and that trend continued yesterday following a report on German producer price inflation, which unexpectedly declined in December following a significant drop in energy prices over the same period. With price pressures seemingly on the retreat, the chances of a further rise in European interest rates continue to decline with the ECB monitoring the threats to price stability over the next month. The Euro has fallen to a near three year low versus the Pound almost on a daily basis over the past week but a report this morning may provide some respite as industrial orders are expected to rise 1.2% in November.

Following a distinct lack of economic data released in the States until Thursday, the Dollar has continued to decline against the majors as the market eagerly awaits further evidence of a rebound in the U.S housing market ahead of the FOMC rate announcement next week. Prior to a band of positive economic reports, it was widely anticipated that the Federal Reserve would begin cutting U.S interest rates in the first quarter of the year. However, with strong growth in consumer spending and a rebound in manufacturing providing support, the Fed have adopted a neutral stance on monetary policy and we expect interest rates to remain unchanged at 5.25% for the first half of the year.

Data Released 23rd January

UK 11:00 CBI Monthly Trends Survey (January)

EU 10:00 Industrial Orders (November)

written by Adam Solomon