Daily Insight

The Pound came under further pressure yesterday, falling an additional 0.2% against both the Euro and the Dollar despite the apparent lack of significant economic reports. However, with UK house prices showing the lowest monthly rise in over five years in February, the Pound began the day on the back foot as it seems increasingly likely that higher interest rates are beginning to weigh on growth in the housing sector. The Pound came under further pressure after the Bank of England released a report to a UK parliamentary committee investigating the first 10-years of monetary policy. The focus of the statement centred around the UK current account deficit, which the report said would eventually have to move to balance and this would require a "depreciation of the real effective exchange rate." Sterling fell sharply on the comments, dropping to a fresh six-week low against the Euro but many analysts were quick to point out that the comments would not be a "major issue" for the Pound. There is a real lack of economic data released in the UK this morning with the focus falling on the Public Sector Net Cash Requirement, which may show that the shortfall between public sector revenues and expenditure increased in January.

The Dollar made modest gains against Sterling yesterday and held firm versus the Euro as the American market remained closed for the President's Day holiday. There is a sparse supply of economic data released in the States this week with the focus falling on the inflationary figures tomorrow and the Real Earnings report will also be watched closely with the market anticipating a rise 0f 0.2% in January.

The Euro managed to consolidate the recent gains made against the majors, closing last night relatively higher against Sterling and remained unchanged at six-week high versus the Dollar. It is a quiet week in terms of economic data but the single currency has managed to hold firm this morning despite a surprisingly negative report on producer prices. The ECB have maintained that policy makers will continue to monitor the current risks to price stability and the report this morning is an early indication of price pressures in Europe's largest economy. German producer price inflation decelerated to slowest pace in over two years last month following a significant drop in energy prices over the same period. Prices rose just 3.2% last month, down from 4.4% in December, which represents the lowest monthly increase since December 2004 and with inflation holding below the Central Bank's 2.0% target for five straight months, it will be interesting to gauge how far the ECB can raise interest rates this year.

Data Released 20th Feb

UK 09:30 PSNCR (January)

written by Adam Solomon