Daily Insight

By the close of trading last night, the Pound had made modest gains against both the Euro and the Dollar following a report on UK factory-gate prices, which unexpectedly rose by the most in six months in January. The producer price index, which provides a gauge of UK inflation, saw output prices increase 0.3% last month, while many investors had predicted a more modest 0.1% rise. The Pound has declined heavily against the majors over the past week following the decision to keep interest rates on hold at 5.25% and that in turn led to premature speculation that rates may of peaked this year. However, the report yesterday will only increase the chances of a further quarter-point rise over the coming months. There is some hugely influential data released in the UK this morning with the release of the consumer price index, which is the preferred measure of inflation and it is widely expected to show that prices fell slightly below 3.0% last month. The monetary policy committee would of had access to the index prior to the rate announcement last week and with rates staying unchanged this month it is likely that inflation moderated to 2.9% in January from 3.0% in December. The Pound may come under increased pressure if the index fell below expectations as it will look increasingly likely that the previous rate increases are slowing economic growth and moderating inflation.

The Dollar remained relatively strong yesterday as the market eagerly awaits the semi-annual monetary policy report from the chairman of the Federal Reserve, Ben Bernanke, who is scheduled to testify to the Senate later this week. However, the U.S currency may come under some pressure this afternoon following the report on the December trade balance. It is widely anticipated that the deficit in goods and services rose from a 16-month low in December, which reflects the increase in energy costs over the same period.

The Euro fell modestly against the Pound yesterday and declined a further 0.3% versus the Dollar following a distinct lack of economic reports in the Euro-zone. The single currency has been making robust gains over the past week as the market factors in a 100% chance of a further rise in European interest rates next month following the typically hawkish rhetoric from the ECB president, Jean-Claude Trichet. The Euro has received a moderate boost this morning as the preliminary estimate for German economic growth showed an unexpected rise in the fourth quarter following a sustained increase in exports and consumer spending. There is a host of significant economic data released in the Euro-zone later this morning with the focus falling on German investor confidence. The ZEW index into investor expectations may rise for a third consecutive month in February as recent reports have showed that growth in consumer spending will be able to supplement the VAT increase administered earlier this year. Elsewhere, the flash estimate for GDP, the value of all good and services, is expected to show that European economic growth accelerated to 3.0% in the fourth quarter from 2.7% in the third.

Data Released 13th February

UK 09:30 Consumer Price Index (January)

- RPI

EU 10:00 Flash GDP (Q4)

EU 10:00 Industrial Production (December)

GER 10:00 ZEW Expectations Balance (February)

U.S 13:30 Trade Balance (December)

written by Adam Solomon