Daily Insight

Following on from last week, the Dollar continued to fall against the majors on Friday and dropped to the lowest level against the Pound in over eight weeks despite a seemingly positive report on the U.S trade balance. The shortfall in trade came in at $58.4 billion against forecasts of a rise towards $60.0 billion and with the escalating tension between China and the U.S set to rumble on, the deficit in goods and services is likely to expand over the coming months. Elsewhere, a separate report showed the producer price inflation rose 1.0% in March and although the Core rate remained unchanged, the report conveys the Fed's message that persistent inflationary pressures remain a concern to policy makers. However, the Dollar continued to slide against the Pound, consolidating above the major support at 1.9820 and we are swiftly approaching the lowest level against Sterling since 1992. The U.S currency was further hampered by weak consumer data as the preliminary sentiment index showed that consumer confidence dropped for a third consecutive month in April following an increase in fuel prices over the Iranian fiasco. The Dollar may receive a timely boost today amid a plethora of economic reports with the focus falling on U.S retail growth, which is expected to show that sales increased 0.5% in March despite the downturn in consumer sentiment.

The Euro managed to make modest gains against the Pound last week and also rose to the highest level versus the Dollar in over two years despite the ECB's decision to keep interest rates on hold in the Euro-zone. The outcome of the announcement was very much anticipated and the focus was always going to fall on the accompanying press conference for clues on future policy. The chairman, Jean-Claude Trichet, used the same tone and language from the previous month but dropped the term "strong vigilance" from his statement, which dispelled the prospect of a further rate hike in May. However, the chairman did maintain a hawkish rhetoric and with European economic growth maintaining the fastest expansion in nearly seven years, the chances of a June rate increase have significantly improved. The Euro may continue making gains against Sterling this week despite the fundamental lack of data released in the Euro-zone as the core inflation reading this morning is expected to rise to 1.9% in February.

The Pound has been making rapid gains against the Dollar over the past week as a host of economic reports have showed growth in the UK retail sector while house prices continue to rise despite the Bank of England's decision to lift interest rates on three occasions since last August. A number of key data releases should provide some insight into the chances of a May rate increase this week as the focus will largely fall on the minutes from the BoE's last policy meeting. In March, one member of the nine-strong committee, David Blanchflower, voted for a cut in UK interest rates and there is a distinct possibility that he may do so again in April, given that there have been no further evidence of an increase in wage growth. However, the market will be looking for any change in stance from the remaining members and there is a chance that the minutes could reveal a three-way split, which would leave the likelihood of a May rate hike very much in the balance. In terms of economic data, the Pound may remain fairly strong this morning as a gauge of inflation is expected to show that producer prices rose 0.9% in March while output prices remained at 2.2% year-on-year from February.

Data Released 16th April

UK 09:30 DCLG House Prices (February)

UK 09:30 Producer Price Index (March)

U.S 13:30 Retail Sales (March)

U.S 13:30 Empire State Index (April)

U.S 14:00 TICs - Net Capital Inflow (February)

U.S 15:00 Business Inventories (February)

U.S 18:00 NAHB Housing Market Index (April)

written by Adam Solomon