Daily Insight

The Dollar managed to find some support yesterday, rising 0.2% against the Euro and a modest 0.1% versus the Pound following a report on the U.S housing market, which showed an unexpected rise in the purchases of new homes. Sales jumped by the most in 14-years in April, rising 16% to an annual pace of 981,000 and the report provides the single biggest indication that lower lending rates and added incentives are slowly spurring demand. Home construction has seen its worst recession since 1990 over the past two years, which correlates with the slowest pace of economic expansion in since 2003. New home sales accounts for roughly 15% of total home sales in the U.S and is widely considered the leading indicator of the housing market, which is slowly showing signs of recovery. In terms of economic data, the focus today will fall on the sales of previously owned homes with economists anticipating a no change from the previous month following the biggest monthly drop in 18-years. Coinciding with the report yesterday, it seems that the biggest slump in housing has finally reached its peak and will begin to contribute towards economic growth in the second half of the year. Elsewhere, the Dollar also received a boost as orders for durable goods rose for the third straight month in April and provides an insight into the recovery in the U.S manufacturing sector.

The Euro has endured three days of losses against both the Pound and the Dollar this week and that trend continued yesterday despite a seemingly positive report on German business confidence. The Munich based Ifo sentiment index remained unchanged at a near-record reading of 108.6 in May and suggests that Europe's largest economy will continuing expanding at the fastest pace in seven years. The prospects of the German economy continue to look positive despite the VAT increase at the start of the year and the increased value of the Euro, which threatens to curb export demand. Elsewhere, a separate report this morning showed that German consumer confidence rose to the highest level in five months in April as a rise in economic growth combined with increased wage growth helped improve household spending.

The Pound is heading for its first weekly gains against the Dollar in nearly a month and has also improved dramatically versus the Euro amid speculation that the Bank of England will continue raising interest rates in the near-to-medium term. Prior to the minutes from the May policy-setting meeting, the Pound had been struggling against the majors with inflation felling below a decade high at 3.0% as four rate hikes since August looked to be having the desired effect. The Pound managed to consolidate on the recent gains made yesterday as the Confederation of British Industry released their monthly industrial trends survey. The report showed that growth in manufacturing underpinned initial expectations and reinforced the chances of further monetary tightening in July or August. The UK currency has continued to advance in early trade this morning ahead of the revised estimate of UK economic growth in the first quarter, which is expected to conform that the economy maintained the pace of expansion in the first three months of 2007.

Data Released 25th May

UK 09:30 GDP (Q1 Revised)

U.S 15:00 Existing Home Sales (April)

written by Adam Solomon