Daily Insight

The Pound surged forward yesterday, rising to the highest level since September 1992 against the Dollar and rose to a fresh 4-year high versus the Euro following an industry report, which showed that UK factory-gate prices increased to a 12-year high in January. As a result, Sterling soared to the highest level against the majors since it was ejected from the European Exchange Rate Mechanism over 14-years ago. However, by the close of trading last night, the Pound had relinquished much of the earlier gains and fell significantly against the Dollar and the Euro overnight as we eagerly await the release of the minutes from the BoE's last policy meeting. The report is expected to show that the monetary policy committee voted unanimously to raise interest rates this month but the minutes should provide an insight into the chances of a further rate hike in February. Elsewhere, Sterling may find further support as a separate government report may show UK economic growth matched a two-year high in the fourth quarter of 2006 following sustained growth in the UK service sector and a rebound in consumer spending.

The recent lacklustre performance of the U.S dollar continued yesterday following a distinct lack of U.S economic data to support the currency and that trend may continue until Thursday with the release of key housing data and durable goods orders. The Dollar dropped to a fresh 14-year low against Sterling before a retracement back under 1.9800 overnight but it does seem increasingly likely that we will launch another assault on the $2 level over the coming weeks.

The Euro has come under increased pressure against the majors in recent weeks following a shift in the tone and language used by the ECB with regards a further tightening of European interest rates. However, the single currency received a much needed boost yesterday as an industry report showed robust growth in industrial orders for the month of November, which will only increase the chances of a further quarter-point rate increase next month. Orders came in slightly higher than the anticipated 1.2% and as a result, the Euro reversed earlier losses against the Pound to finish the session 0.1% higher while the single currency also rose 0.6% versus the Dollar by the close of trading last night.

Data Released 24th January

UK 09:30 BoE Minutes of January Meeting

UK 09:30 Preliminary GDP (Q4)

UK 09:30 Current Account Balance (Q4)

written by Adam Solomon