Daily Insight

The recent positive sentiment surrounding the Dollar diminished yesterday as the U.S currency declined 0.6% against the Pound and fell 0.2% versus the Euro following a worse-than-expected report on the U.S housing market. The National Association of Realtors released their monthly survey, which showed a 4.1% drop in pending home sales in January and provides further evidence that the biggest slump in 17-years has yet to peak. Elsewhere, the Dollar continued to decline as a separate report from the Commerce Department showed that factory orders dropped a considerable 5.6% in January, which represents the biggest monthly drop in over six years. However, earlier in the session the Dollar did receive an unlikely boost as a report from the labour department showed that unit labour costs accelerated more than anticipated in the revised estimate for the fourth quarter, suggesting inflationary pressures remain. A separate gauge of the report showed that U.S worker productivity grew less than initially estimated in the last quarter but with inflation still showing signs of rising, the Federal Reserve are unlikely to reduce interest rates over the coming months. There is a distinct lack of economic data released in the States today with the focus falling on the ADP employment report, which may provide an insight in the monthly U.S job report this Friday.

The Pound rose against the majors yesterday, firming 0.6% versus the Dollar and also traded 0.3% higher against the Euro by the close of trading last night following a report from the British Retail Consortium, which showed that UK retail sales accelerated 5.6% in February from this stage in 2006. Growth in sales rose well above expectations, rising by the biggest amount in 9-months and the report has fuelled speculation that retailers would take advantage of demand and push prices higher over the coming months, leading to increased inflationary pressures. Therefore, the Bank of England will need to raise interest rates over the coming months with many analysts predicting a further quarter-point increase by June.

The Euro managed to continuing making modest gains against the Dollar yesterday but edged 0.3% lower versus the Pound despite a seemingly positive report from the European Union. Economic growth in the Euro-zone accelerated 0.9% in the fourth quarter as exports increased at the fastest pace in six years as companies increased spending and hiring to meet demand from overseas. As result, unemployment in the Euro-region fell to a record low and that is expected to propel economic growth in 2007. However, the Euro failed to consolidate on the gains made against Sterling and the single currency came under some pressure as a separate report showed that retail sales fell 1.0% in January following the increase in value-added tax in Germany at the start of the year. There is a sparse supply of significant economic data released in Europe this morning as we build up to the ECB interest rate announcement tomorrow. The focus will fall on German manufacturing orders, which is expected to increase in January with orders rising a projected 0.4% from December and with growth in manufacturing accelerating beyond expectations last month, the ECB will be concerned that the pace of expansion will stoke inflationary concerns.

Data Released 7th March

GER 11:00 Manufacturing Orders (January)

U.S 13:15 ADP Employment Report (February)

U.S 19:00 Fed Beige Book

written by Adam Solomon