Daily Insight

Over the course of the week, the Pound has come under further pressure against the majors, dropping by the most in two weeks versus the Euro following a particularly soft rhetoric from a member of the Bank of England's monetary policy committee. David Blanchflower, who last year opposed the August rate hike, said that the Bank expects the Pound to decline heavily over the next 2-years as inflation slows. He also stated that consumer price inflation, which has scaled back from a decade-high in January, will continue to moderate over the coming months, prompting speculation that UK interest rates may have peaked. Sterling came under further pressure yesterday, easing 0.1% against the Dollar and a further 0.2% versus the Euro despite a report from the Nationwide Building society showed that UK house prices rose for a 12th month in February. The average cost of a home gained 0.7% in February following a 0.3% rise the previous month and it seems that three interest rate rises since last August have yet to slow the property market. The issue of supply and demand will continue to fuel prices and that will give the bank of England scope for a further rate rise over the next few months. However, the Pound failed to make any gains and a separate report showed that consumer confidence unexpectedly fell in February and it seems increasingly likely that spending will be able to sustain the robust growth of 2006.

The positive sentiment surrounding the Euro has continued throughout the week as we have achieved a new six-week high against the Dollar and also made robust gains against the Pound following a band of positive economic reports. The EC sentiment index showed that confidence in the European economy unexpectedly rose in February for the first time in four months as unemployment fell to a record low and inflation stayed below 2.0%. A separate report earlier in the day showed that German unemployment fell to the lowest level in over five years following the fastest economic expansion in 6-years, which has encouraged companies to step up hiring. The Euro failed to consolidate on the recent gains made against the Dollar in the aftermath of the reports but a hawkish statement from a member of the ECB governing council gave further support to the single currency. A statement from Axel Weber indicated that he would be recommending a further tightening of monetary policy beyond the predicted quarter-point hike in March.

The Dollar has managed to remain firm against the Pound over the past two days despite a damaging report on U.S durable goods orders, which fell by more than forecast in January. The report illustrated that excess inventories encouraged companies to limit spending as orders fell 7.8%, the biggest monthly decline since October last year. However, the Dollar managed to make modest gains against the majors yesterday as the revised estimate for U.S GDP showed that the economy grew at an annual rate of 2.2% in the fourth quarter, which was significantly slower than government estimates. The figures portray a pattern consistent with moderating growth over the past year while a separate gauge of the report showed that the Fed's preferred measure of inflation rose less than previously forecast. The U.S currency also managed to stay firm despite a report on the U.S property market, which showed that new homes sales fell by the most in 13-years in January, providing further evidence that the slump in housing has yet to peak. Data Released 1st March

UK 09:30 Mortgage Approvals (January)

UK 09:30 CIPS Manufacturing Survey (February)

EU 10:00 Flash HICP (February)

U.S 13:30 Initial Jobless Claims (w/e 24th Feb)

U.S 13:30 Personal Income / Expenditure (January)

- Core PCE Deflator

U.S 15:00 ISM Manufacturing (February)

U.S 15:00 Construction Spending (January)

written by Adam Solomon