Daily Insight

Following on from last week, the Pound came under considerable pressure against the majors towards the end of the week, dropping to lowest level versus the Euro this year and falling through the trend support at 1.9400 against the Dollar. Following a dramatic fall in the UK stock exchange last week, Sterling has continued to drop against both the Euro and the Dollar and as a result, the technical outlook has deteriorated to a degree that suggests we may decline further. Therefore, Euro and Dollar buyers would be well advised to place a stop order in the market following the Pound's 4% depreciation against the Euro since mid January alone. It is a significant week in terms of economic data but the focus will inevitably fall on the Bank of England interest rate announcement on Thursday where policy makers are expected to hold rates at 5.25%. Inflation is still running well ahead of the 2.0% target and that may prompt the MPC to raise rates once more this year but with consumer prices dropping by the most in 4-years in January, the committee may wait to assess the impact of three previous rate hikes since August. In terms of economic data, the Pound may be given a reprieve this morning with the release of the CIPS Services survey, which may show a rise to a reading of 59.8 with a figure above 50 indicating growth.

The positive sentiment surrounding the Euro has picked up pace over the past week ahead of the European Central bank interest rate announcement on Thursday. Policy makers are widely expected to raise rates by a further quarter-point following a band of hawkish rhetoric from a number of ECB officials including the chairman, Jean-Claude Trichet. However, that eventuality has been largely factored in to current market movement and therefore the focus will fall on the accompanying press conference where Trichet may indicate that further monetary tightening will be necessary in order to maintain risks to price stability. The Euro has continued to appreciate against the Pound since Friday, falling through the trend support around 1.4800 and the technical outlook seems to suggest that we will fall further over the coming week. In terms of economic data, the single currency may continue on the front foot this morning following the Purchasing Manager's report on the Euro-zone service sector, which is expected to remain at a level consistent with annualised GDP growth.

The Dollar has managed to make considerable gains against Sterling since Friday and that trend may continue this week ahead of a key week in terms of U.S economic data. The focus will undoubtedly fall on the monthly job report, which is expected to show that the U.S economy added 123,000 jobs to payrolls in February while the unemployment rate is forecast to remain unchanged at 4.6%. There are risks to the downside following the recent trend of the weekly jobless claims and some direction on the U.S labour market may be evident in the ADP employment report on Wednesday. Elsewhere, the Dollar may come under some pressure this afternoon as the Institute of Supply Management release their monthly non manufacturing index, which is expected to show that growth in U.S service industries slowed in February.

Data Released 5th March

09:30 CIPS Services Survey (February)

09:00 PMI Services (February)

15:00 ISM Non Manufacturing Index (February)

written by Adam Solomon