Daily Insight

Initially, the Pound declined against the majors, dropping a further 0.2% against both the Euro and the Dollar following the release of the minutes from the Bank of England's last policy-setting meeting. The monetary policy committee voted 7-2 in favour of keeping interest rates on hold at 5.25% this month with the two dissenters favouring a further quarter-point increase with rates still at a "modest" level. However, the majority of the panel, led by the governor Mervyn King, stated that more time was required in order for the economy to absorb the three previous rate increases since August last year. Recent economic reports have shown a considerable drop in retail sales over the past month combined with evidence of a slowdown in the UK housing sector while consumer price inflation has also moderated to the biggest month-on-month decrease in four years. Therefore, the Bank of England anticipate that inflation will drop towards the 2.0% target in the fourth quarter of this year while the minutes combined with the quarterly report last week have signalled that one further quarter-point increase would be necessary at some point over the coming months. As a result, the Pound declined against both the Euro and the Dollar on the release of the minutes but by the close of the European session had finished the day virtually unchanged against both major currencies. In terms of economic data, the Pound received a boost as a separate report from the Confederation of British Industry indicated that UK manufacturing orders had reached the highest level in 12-years this month.

The Euro has remained relatively unchanged against the majors following a distinct lack of economic data released in the Euro-zone. However, the single currency may receive a boost this morning as the revised estimate for German economic growth is expected to rise to an annual rate of 3.7% as the economy outperforms initial expectations, achieving the fastest expansion in six-years. Elsewhere, a separate report may show a further increase in European industrial orders, which is widely expected to increase by 0.5% in December following a substantial 1.4% rise the previous month.

The Dollar failed to capitalise on a report yesterday from the Labour Department, which showed that U.S consumer prices rose by more than anticipated in January with prices excluding the volatile food and energy gauge rising 0.3%, the most since June last year. The index was expected to increase just 0.2% in January but the report will only fuel speculation that inflationary pressures persist despite recent comments from the Federal Reserve suggesting inflation will continue to moderate. Elsewhere, the Dollar also failed to find some support as a gauge of leading U.S economic indicators rose for a second month January, the first back-to-back increase in over year. Following a significant rise in consumer sentiment over the same period, the index rose 0.1% after a substantial 0.6% gain in December. The report will provide some direction on the U.S economy over the next quarter and only reiterates recent comments from Fed officials reflecting sustainable economic growth over the coming months.

Data Released 21st February

EU 10:00 Industrial Orders (December)

U.S 13:30 Initial Jobless Claims (w/e 17th February)

written by Adam Solomon