Daily Insight

The Pound advanced against the Dollar yesterday and closed in on the illusive $2 level as signs of higher UK inflation pushed the Pound to the highest level since "Black Wednesday in September 1992. UK Producer price inflation rose by the most in 11 months in March as companies increased prices with rising inflationary concerns feeding into the economy. Output prices gained 0.6% in February and the report follows recent comments from a number of policy makers in the Bank of England who have reiterated concerns that companies are charging higher prices that will ultimately quicken the pace of inflation. The focus this morning will now fall heavily on the March consumer price index, which is expected to show that UK inflation held firm at the second highest rate in over 10-years last month. Consumer prices may have risen 2.8% year-on-year, the same pace as in February, and remains well above the Bank of England's 2.0% target. Therefore, the report this morning combined with the index of factory-gate inflation yesterday will surely increase the chances of a further interest rate rise in the very near-term. As a result, the Pound made rapid gains against the Dollar, rising to the highest level in 14-years to peak at 1.9939 yesterday and from a technical perspective, Dollar buyers would be well advised to place a stop order in the market to protect against a reversal.

The Dollar has been coming under severe pressure over the past few sessions despite recent comments from the Federal Reserve, which we designed to shift the attention away from interest rate cut over the medium-term. However, the U.S currency has plummeted to lowest level against the Pound in nearly 15-years and is also closing in on a record low versus the Euro as recent evidence suggests that the dramatic slump in housing has yet to peak while trade relations with China continue to be strained. In terms of economic data, the Dollar failed to find support yesterday afternoon despite a seemingly positive report on the retail sector. Sales rose by the most in three months in March, which suggests that rising incomes with continue to boost consumer confidence and drive economic growth this year.

The Euro continued to make gains against the Dollar yesterday and we are coming close to a record high against the U.S currency after reaching the best level for over two years at 1.3576. The recent strength of the Euro has been underpinned by a number of hawkish statements from a host ECB officials while robust economic growth has increased the chances of further monetary tightening. The single currency received a further boost yesterday as a gauge of consumer prices showed that Euro-zone inflation rose to 1.9% in March from 1.8% the previous month as we tick closer towards the Central Bank's 2.0% ceiling. The European Central Bank has raised interest rates on seven occasions in this tightening cycle and with record low unemployment combined with rising economic growth, there remains a significant risk that inflation will continue to accelerate and prompt the ECB to raise interest rates in the short-to-medium term. In terms of economic data, the Euro may continue making gains this morning as German investor confidence probably rose to the highest level in nine months in April. The German based ZEW index is expected to increase to a reading of 10 this month, which provides further evidence that the economy is weathering the effects of a U.S slowdown and a strong Euro.

Data Released 17th April

UK 09:30 Consumer Price Index (March)

- RPI

EU 10:00 Trade Balance (February)

GER 10:00 ZEW Expectations Balance (April)

U.S 13:30 Consumer Price Index (March)

U.S 13:30 Housing Starts (March)

U.S 14:15 Industrial Production (March)

written by Adam Solomon