Daily Insight

The Pound came under considerable pressure against the majors yesterday, dropping 0.7% versus the Euro and a more modest 0.1% against the U.S Dollar following the resignation of the deputy leader of the House of Commons, Nigel Griffiths, who quit the government in protest at plans to renew the UK's Trident nuclear weapons system. Initially, the positive sentiment surrounding the Pound continued from last week following a band of economic data, which showed an unexpected rise in UK factory-gate inflation while a separate report showed a substantial rise in house prices. The producer price index, which is a measure of inflation in the manufacturing and industrial sector, rose for a third consecutive month in February, adding to the case for a further rise in UK interest rates. Output prices gained 0.3% from January, which was just higher than initial expectations, while the core rate rose 2.7% from this stage last year. Generally, you would expect Sterling to make gains against the majors as a separate report showed that annual house price inflation surged higher in January to 10.9% from 8.2% the previous month. Therefore, the average cost of a home rose 2.1% between December and January and it seems that higher interest rates have yet to dampen growth in the UK property market. However, a separate report this morning is in sharp contrast to the figures yesterday as House prices rose at the slowest pace in nine months in February according to the Royal Institution of Chartered Surveyors.

The Dollar came under further pressure against the Euro yesterday despite a distinct lack of economic data released in the States but the U.S currency may receive a timely boost this afternoon following a report on the retail sector. Sales in the U.S are widely expected to have increased in February following a significant rise in wage growth over the same period that will keep consumers spending and provide a support to economic growth. Sales may rise 0.3% from January and the figures will provide further evidence that consumer spending, which accounts for two-thirds of the economy, will be able to sustain momentum and supplement the slump in the housing and manufacturing sectors. However, should the report come in weaker than anticipated, it might rekindle concerns that the slump in housing could initiate a consumer slowdown.

The Euro made widespread gains yesterday, firming 0.6% against the Dollar and by the close of trading last night was 0.7% higher versus the Pound despite a fundamental lack of economic data released in the Euro-zone. Although, the influential IfW index raised its forecast for German economic growth this year from 2.1% to 2.8% while it also expected the European Central Bank to raise interest rates a further 50 basis points to stand at 4.25% by September. Therefore, the Euro managed to claw back the recent gains made against Sterling and the single currency may receive a further boost this morning as German investor confidence is expected to rise to the highest level since July. The ZEW index for European economic research may rise to a reading of 3.2 in March from 2.9 the previous month as evidence mounts that the German economy will overcome the value-added tax increase at the start of the year. Elsewhere, a separate report released later this morning may show sustained growth in the manufacturing sector as European industrial production is expected to rise 0.4% in January while output may increase to annual rate of 4.2%.

Data Released 13th March

UK 09:30 Global Trade Balance (January)

EU 10:00 Industrial Production (January)

GER 10:00 ZEW Expectations Balance (March)

U.S 12:30 Retail Sales (February)

U.S 14:00 Business Inventories (January)

written by Adam Solomon