Daily Insight

The negative sentiment surrounding the Dollar continued yesterday as the U.S currency fell to a fresh two-year low versus the Euro and also declined against the Pound despite a positive round of U.S economic data. Recent reports have suggested that the slump in housing has showed few signs of abating as sales of previously owned homes plummeted to the lowest level in four years last month. A separate gauge of the property market was released yesterday and showed that the sales of new homes actually rose for the first time in three months as builders added incentives in order to encourage first time buyers. Purchases of new homes rose 2.6% to an annual pace of 858,000 in March while the supply of unsold properties swelling the market unexpectedly declined. However, the surprising gain in sales only provides a glimpse of hope that a recovery in demand is taking shape with many investors speculating that the biggest slump in the sector for over 17-years will continue to hamper economic expansion. Elsewhere, the Dollar also failed to find some support after a separate report showed that U.S durable goods orders rose by much more than anticipated in March. Orders, including the volatile transportation gauge, increased 3.4% after a 2.4% gain in February and the report provides an indication that corporate spending is starting to recover in the first quarter.

The Euro remained largely unchanged against Sterling yesterday but increased to a near-record level versus the Dollar after business confidence in Germany rose for the second consecutive month. The Ifo sentiment index climbed to a reading of 108.6 in April, which represents the second-highest level ever achieved and indicates that the European economic growth will continue to accelerate in Europe's largest economy. Elsewhere, the Euro continued to make gains against the Dollar after the German government raised its growth forecast for this year to 2.3% from 1.7% previously estimated. Unemployment within the Euro-zone is currently at the lowest level on record, which has helped consumer spending in the wake of the introduction of the sales tax increase at the start of the year. In terms of economic data, the Euro may remain fairly strong this morning as a gauge of German consumer confidence rises in May, showing that sentiment remains at a level consistent with growth.

The Pound managed to consolidate back above the $2.00 level yesterday and remained largely firm versus the Euro as the preliminary estimate of UK GDP showed that the economy expanded faster than anticipated in the first quarter. Gross domestic product, the value of all goods and services, increased 0.7% in the first three months of the year, which matches the pace of the previous two quarters and suggests that higher interest rates have yet to curb growth. The UK economy is currently performing at the highest level in nearly three years and with the inflation above 3.0% over the past month, the BoE are widely expected to continue raising interest rates in the near to medium term. In terms of economic data, the positive sentiment surrounding the Pound may continue this morning as a report from Nationwide is expected to show that UK house prices increased a further 0.6% in April, which provides yet another indication that higher interest rates have done little slow demand.

Data Released 26th April

UK 07:00 House Prices (April)

U.S 13:30 Initial Jobless Claims (w/e 21st April)

written by Adam Solomon