Daily Insight

The Pound managed to make considerable gains against the majors yesterday, firming 0.2% versus the Euro and a further 0.3% against the Dollar as we closed above trend resistance at 1.9435 last night and from a technical perspective, it looks increasingly likely that we will continue to climb higher. There was a distinct lack of UK economic data released yesterday but a survey from the property website Rightmove plc showed that UK house prices grew 1.5% in March, pushing the annual rate to 12.2% from this stage in 2006. It seems that the Bank of England's decision to lift interest rates three times since last August has seemingly failed to cool the property market with house prices still advancing. The focus today in terms of economic data will undoubtedly fall on the UK consumer price index, which is expected to show that inflation exceeded the Central Bank's 2.0% target for a 10th consecutive month in February. Consumer prices may stay relatively unchanged at 2.7% year-on-year last month but the retail price index may prove more influential in shaping consumer price expectations. RPI inflation has doubled in the past year, reaching the highest level since 1992 and if the figures today show that prices rose beyond 4.2% last month, we can expect the Pound to make further gains against the majors.

The Euro remained relatively unchanged against the Dollar by the close of trading last night but declined 0.2% versus the Pound following a fundamental lack of data released in the Euro-zone. That trend may stay fairly consistent throughout the week as the main focus will fall on Jean-Claude Trichet's testimony to the EU Parliament tomorrow where the chairman of the European Central Bank may provide some clues to future outlook for monetary policy. The Euro has managed to stay firm this morning following the release of German inflationary data where producer prices were expected to rise 0.3% in February although the annual rate of inflation may have dropped to 2.8%. Elsewhere, the Euro may stay fairly unchanged against the majors as a separate report is expected to show that the European trade balance was reduced to €1.8 billion in January from €2.5 billion the previous month.

The Dollar continued to decline against the Pound yesterday and the trend seems to suggest that the U.S currency will continue to decline ahead of the FOMC interest rate announcement tomorrow. It is widely anticipated that the Federal Reserve will leave rates unchanged at 5.25% but the post-decision statement will be heavily scrutinized for any change in tone as growth continues to lose momentum. However, Fed officials may maintain a tightening bias in the statement tomorrow as inflation remain above the Fed's target. Elsewhere, the Dollar may be given a reprieve this afternoon as evidence begins to build that the slump in the U.S housing market is beginning to peak. Housing starts are expected to show that builders started work on new homes at the second-slowest pace in nine years last month, rising to an annual rate of 1.45 million.

Data Released 20th March

UK 09:30 PSNCR (February)

UK 09:30 Consumer Price Index (February)

EU 10:00 Trade Balance (January)

U.S 12:30 Housing Starts (February)

written by Adam Solomon