Daily Insight

The Pound continued to appreciate against the majors yesterday, rising to the highest level in 10 weeks versus the Dollar and also achieved a one-month high against the Euro as we build up to the Bank of England rate announcement tomorrow. The decision from the monetary committee policy is finely balanced with the market seemingly focused on the prospect of a further quarter-point increase as inflation remains well above the Central Bank's 2.0% target. In addition, growth in the retail sector has rebounded sharply over the past month and with strong consumer spending combined with persistently high house prices, there is a good chance that we will see interest rates rise to 5.50% tomorrow. The minutes from the Bank of England's last policy meeting seemed to suggest that the chances of a rate hike this month were remote as the committee voted 8-1 in favour of a no change with the one dissenter voting for a cut. However, it should be pointed out that the tone of last month's minutes will have little influence on the decision this month as the MPC has a history of sharp turnarounds in voting patterns. The Pound remained largely unchanged against the majors by the close of trading last night but the UK currency is expected to remain on the front foot as a survey from the Nationwide Building society showed that UK consumer confidence rose the highest level in four months. Record employment growth combined with rising house prices and the fastest pace of economic growth in over 2-years has heartened consumer confidence in spite of higher interest rates, which currently stand at a five-year high.

The Euro remained little changed against the Dollar yesterday and continued to decline versus the Pound following a distinct lack of economic data released in the Euro-zone with the sole report showing that producer price inflation came out largely in line with expectations. The single currency make receive a timely boost this morning as European service industries are forecast to expand at close to the fastest pace since July last month. The Purchasing Manager's index may have held at a reading of 57.5 in March after touching a six-month high in January while a reading above 50 indicates expansion. Service sector growth represents the largest proportion of the European economy and is helping to propel growth after unemployment fell to a record low and consumer confidence rose to the highest level in six years. The report should provide a good indication that the Euro-zone economy remains healthy with growth expected to achieve the fastest pace in a decade this year despite the slowdown in the U.S, which is likely to curb export growth. Elsewhere, the Euro may also rise following a report on European retail growth, which is forecast to show that sales increased 0.5% in February to an annual rate of 1.1%.

By the close of trading last night, the Dollar remained virtually unchanged against both the Euro and the Pound as we build up to the monthly Nonfarm Payroll numbers this Friday while a host of economic data has increased sentiment. A report yesterday showed that U.S retail sales increased 4.9% last week, which represents the biggest gain in two months while projections for March sales increased by upto 5.0%. Following the dramatic slump in housing and factory production over the past year, the U.S economy has been heavily resilient on consumer spending and therefore the report yesterday will provide optimism that retail growth will be able to support economic expansion this year. Elsewhere, the Dollar also received a timely boost as a separate report on the housing market showed that pending homes sales rose 0.7% in February, easing concerns that the worst slump in over 17-years will continue to worsen. In terms of economic data, the Dollar may stay fairly resilient this afternoon as growth in the U.S service sector may bounce back from the lowest level in nearly four years in March. The ISM index of non-manufacturing companies, which accounts for 90% of the economy, may rise to a reading of 55.0 in February, a sign that the economy is expanding at a moderate pace as previously forecast by the Federal Reserve.

Data Released 4th April

UK 09:30 CIPS Services Survey (March)

EU 09:00 PMI Services (March)

EU 10:00 Retail Sales (February)

GER 11:00 Manufacturing Orders (February)

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

U.S 15:00 ISM Non-Manufacturing (March)

U.S 15:00 Factory Goods Orders (February)

written by Adam Solomon