Daily Insight

The Pound managed to consolidate on the recent gains made against the Dollar, firming an additional 0.1% versus the U.S currency but Sterling fell 0.2% against the Euro by the close of trading last night as we build up to the Bank of England rate announcement this lunchtime. The decision from the monetary policy committee is finely balanced as recent evidence has suggested a slowdown in property prices while inflation continues to rise to the highest level in 15-years. The Pound has been rising this week amid speculation that the Central Bank could lift interest rates early in April but if the MPC decide to wait and asses the impact of previous rate hikes, Sterling will come under considerable pressure against both the Euro and the Dollar. Therefore, Euro and Dollar buyers would be well advised to place a stop order in the market to protect against any adverse movement in the aftermath of the announcement.

In terms of economic data, the Pound remained firm yesterday as a report on UK service industries showed that growth in the sector accelerated in March. The Index advanced to a reading of 57.6 from 57.4 in January according to the report from the Chartered Institute of Purchasing and Supply, which will only increase the pressure on the BoE to raise interest rates this month. Elsewhere, a separate report early this morning has showed that UK house price inflation accelerated to the fastest in pace in over two years in the first quarter of 2007. In the three months to March, values rose 11.1% from the same period in 2006 and it seems evident that growth in the property market has been able to supplement higher interest rates. However, the Pound has declined modestly against both the Euro and the Dollar this morning as a report on UK manufacturing showed that factory production surprisingly fell by the most in over a year in February.

The Euro managed to rebound against the Pound yesterday and also gained a further 0.3% versus the Dollar after a report on European service industries expanded at close to the fastest pace in six months in March. With unemployment falling to a record low combined with consumer confidence at a six-year high, it seems that growth in the Service sector will be able to support economic expansion this year despite the impending slowdown in exports. The Purchasing Manager's index slipped to a reading of 57.4 from 57.5 in February but it seems increasingly likely that European economy will be able to weather a slowdown in the U.S as growth is expected to reach the fastest pace in a decade later this year. Therefore, the European Central Bank will have plenty of scope to continue monetary tightening this year as several members of the governing council have expressed concerns over higher inflation in months ahead.

The negative sentiment surrounding the Dollar continued yesterday as a report from the Institute for Supply Management showed that U.S service industries grew at the slowest pace in nearly four years in March. The Dollar had made modest gains against the Pound prior to the release of the figure, which only adds to the pressure on the U.S economy following the slumps in housing and manufacturing. The ISM index slid to a reading of 52.4 last month and although a figure above 50 indicates expansion, it looks increasingly evident that rising fuel prices and a downturn in retail sales will prevent further growth in the sector. However, the Dollar did receive a timely boost yesterday as a report on the labour market showed that U.S companies added 106,000 jobs in March. The ADP employment report, which provides an insight in nonfarm payrolls tomorrow, showed that the labour market continues to show signs of growth with unemployment close to a five-year low.

Data Released 5th April

UK 09:30 Industrial Production (February)

UK 12:00 Bank of England Interest Rate Announcement

U.S 13:30 Initial Jobless Claims (w/e 31st March)

written by Adam Solomon