Daily Insight

The Dollar continued to slide against the Euro yesterday but by the close of trading last night was 0.2% higher versus the Pound despite a weaker-than-expected report on U.S consumer confidence. Following a particularly soft report on retail sales and consumer sentiment earlier in the month, the Conference Board's index into consumer confidence was widely expected to show a reading below the five-year high at 112.5 in March. The sustained slump in the U.S housing market combined with a sharp rebound in fuel prices over the past month has led to increased pessimism among the consumer that will surely lead to an imminent rate cut by the Federal Reserve. The index fell more than anticipated yesterday to a reading of 107.2 with the only positive note coming from the labour market component of the report, which rose to the highest level since August 2001. However, the overall theme of the data was negative for the U.S economy and as a result, the Dollar continues to slide against the Euro. In terms of economic reports, the focus today will fall on durable goods orders for the month of February and initial forecasts suggests that orders probably rose after falling by the most in six years the previous month.

The Euro made widespread gains against the majors yesterday, rising 0.2% versus the Dollar and rebounded 0.3% against the Pound following a surprisingly positive report on German business confidence. The Ifo business climate index rose to a reading of 107.7 in March and the report will provide a further indication that Europe's largest economy will be able to sustain growth in the wake of the value-added tax increase and can supplement the economic slowdown in the States. German economic growth accelerated to the fastest pace in six years in 2006 and it seems the economy will continue to expand as companies increase hiring and investment. The Euro rose modestly against both the Pound and the Dollar in the aftermath of the report as speculation continues to rise that the ECB will need to raise interest rates beyond 3.75%. There is some significant economic data released in the Euro-zone this morning with the M3 three month moving average expected to show that money supply remained largely unchanged in February at 9.7%. Elsewhere, German consumer confidence rose for the first time in five months in February providing yet further evidence that the economy has overcome the increase in sales tax.

The Pound came under increased pressure against the majors yesterday following a statement from Mervyn King, the governor of the Bank of England, who told a UK Treasury select committee that the UK housing market was beginning to slow. The statement also pointed to upside risks to inflation in the short-term but the implications for economic growth, should confidence be hit by slowing house prices, has seemingly weakened Sterling. In addition, a report earlier today has reiterated those concerns as UK house-price growth slowed by 0.4% in March, which provides an indication that higher borrowing costs are finally beginning to slow the property market. According to the Nationwide building society, prices rose 2.1% in the first quarter of 2007, the slowest pace in seven months with the average cost of a home falling to £177,083. Elsewhere, the Pound may struggle to make further gains against the majors this morning as the final estimate of UK gross domestic product in the fourth quarter is expected to confirm economic growth above trend at 3.0%.

Data Released 28th March

UK 09:30 GDP (Final Q4)

UK 09:30 Current Account (Q4)

EU 09:00 M3 / 3 month moving Average (February)

U.S 13:30 Durable Goods Orders (February)

written by Adam Solomon