Daily Insight

The Pound managed to snap a three day losing steak against the Dollar yesterday and closed above the significant support level at $2.0000 despite a reasonably negative report on the UK manufacturing sector as the CBI's industrial trends survey weakened in April. Elsewhere, the Pound managed to remain fairly strong against the Dollar, gaining 0.2% on the session but dropped under 1.4700 for the first time in ten days versus the Euro. The governor of the Bank of England, Mervyn King, gave a testimony to parliament on UK inflation where he highlighted that there could be a "sharp" decline in the core rate of inflation over the next four to six months and reiterated that the MPC remains determined to bring inflation back within its 2.0% target. The Bank of England has lifted interest rates three-times since last August with the current benchmark lending rate at the highest level in five-years. Yesterday, the Bank of England said that the ongoing strength in the UK housing market was one of the main drivers of inflation and King's comments will only add to speculation that UK interest rates will rise to 5.50% next month. In terms of economic data, the Pound may come under some pressure this morning as the preliminary estimate of UK gross domestic product is expected to moderate to 2.8% in the first quarter. The report should provide an indication that the UK economy has peaked with growth stagnating from the fastest pace in three years at 3.0%.

The Euro continued to make strides against the Dollar yesterday, approaching a record high at 1.3369 while the single currency also make widespread gains versus the Pound despite a seemingly negative report on the Euro-zone industrial sector. Orders plunged -0.7% in February despite initial forecasts of a rise towards 1.0% and the report provides a further insight that the rising strength of the Euro is having a negative impact on European manufacturing and export growth. There has been widespread concerns that a strong currency will have a damaging effect on the economy and the report yesterday may have an influence on the ECB's decision to continue lifting interest rates. In addition, with Euro-zone production showing multiple signs of slowing, the focus this morning will fall on the German Ifo business climate index, which has risen to the highest level in a decade in recent months. Therefore, the Euro may come under some pressure if the index follows the same pattern as previous reports although initial forecasts suggests that the sentiment index probably rose for a second month in April.

The Dollar fell close to a fresh two-year low against the Euro yesterday, dropping 0.4% by the close of trading last night following a band of negative U.S economic data. The Conference Board's index of consumer confidence fell to the lowest reading in eight months in April on concerns over rising fuel prices and the wave of subprime mortgage defaults. The index fell to a reading of 104.0 this month from 108.2 in March and a separate gauge of the report showed that optimism in the job market had declined while the proportion who said they planned to invest in the property market was the lowest in over two years. Following the rapid and sustained slump in housing and manufacturing, the Federal Reserve have been largely reliant on a strong labour market in order to promote consumer spending and keep the economy expanding at a moderate pace. Elsewhere, the negative sentiment surrounding the Dollar continued as a separate report on the housing sector showed that sales of existing homes declined by more than anticipated in March. The report showed that house purchases dropped 8.4% last month to the lowest level in nearly four years and provides a further indication that the biggest slump in housing for over 17-years has shown few signs of peaking.

Data Released 25th April

UK 09:30 Preliminary GDP (Q1)

GER 09:00 Ifo Business Climate Index (April)

U.S 13:30 Durable Goods Orders (March)

U.S 15:00 New Home Sales (March)

written by Adam Solomon