Daily Insight

The Pound managed to make significant gains yesterday, rising 0.2% against the Dollar and a surprising 0.3% versus the Euro as we bounced off the major support level around 1.4800 and it now looks increasingly likely that Euro sellers would be well advised to take advantage of the current rate. The unlikely rally was sparked after figures revealed that UK mortgage lending rose strongly in January while mortgage approvals reached record levels over the same period. The reports will provide renewed optimism that growth in the housing sector will be able to supplement three interest rate rises since August last year. However, the Pound may come under some pressure this morning following the release of the minutes from the Bank of England's last policy setting meeting. The MPC left interest rates unchanged at 5.25% and expectations of any further monetary tightening have been undermined by recent reports, which have shown moderating inflationary concerns. The minutes will show how the 9-strong committee voted last month following a split decision to raise interest rates in January. A unanimous vote to keep rates on hold may weigh on sterling sentiment while the tone and language of the report will also provide an insight into future policy. In terms of economic data, a report on the UK manufacturing sector may show a sustained loss of momentum in the first quarter of 2007 with the CBI industrial trends survey expected to show a distinct drop in output.

The Euro managed to make further gains against the Dollar yesterday, rising to a seven-week high against the U.S currency despite German producer prices dropping to a 2-year low in January. The gauge of factory-gate inflation showed moderating risks to price stability but we still expect the ECB to raise interest rates next month, which should provide some support to the Euro. However, the single currency failed to consolidate on the recent gains made against Sterling and dropped back towards the resistance at 1.4875. There is a sparse supply of economic data released in the Euro-zone this morning with the focus falling on the European current account balance, which is expected to remain relatively unchanged in December.

The Dollar came under severe pressure yesterday, dropping significantly against the Pound and the Euro following reports that U.S targets in Iran would extend beyond nuclear sites to include its military infrastructure. The news hampered any fragile dollar sentiment as it raised the risks of attack on U.S interests at home and abroad but the added risk to the lucrative oil supplies in the region would of been the primary catalyst to the dollar weakness. Following a sparse supply of economic data released in the States over the past two days, the Dollar may come under increased pressure this afternoon as Consumer prices probably rose at a slower pace in January. The consumer price index may show that inflationary concerns continue to moderate following a sustained drop in energy prices over the past month. Prices, excluding the volatile food and energy gauge, probably rose 0.2% from December and the report will only reiterate recent comments from Fed officials of moderating economic growth combined with diminishing inflationary pressures.

Data Released 21st February

UK 09:30 BoE MPC Minutes - February Meeting

UK 11:00 CBI Industrial Trends Survey (February)

EU 09:00 Current Account Balance (December)

U.S 13:30 Consumer Price Index (January)

U.S 15:00 Leading Indicators (January)

U.S 13:30 Real Earnings (January)

written by Adam Solomon