Daily Insight

The Pound managed to claw back some moderate gains against the Euro yesterday but continued to decline versus the U.S Dollar as a gauge of UK house prices advanced at slowest pace in five months. The report yesterday provided a strong indication that an increase in affordable housing combined with higher interest rates are slowly beginning to curb demand and thusly slow the booming UK property market. In addition, a separate report yesterday from the British Bankers' Association confirmed that a demand for mortgages is weakening, down 3.0% from a year earlier as the highest benchmark lending rate on six years discourages first time buyers. The Bank of England have lifted UK interest rates on four occasions since last August in a desperate bid to quell inflation but it is estimated that mortgage repayments have risen by up to £120 a month on a £200,000 property.

The Euro lost ground against Sterling yesterday and also fell an additional 0.4% versus the U.S Dollar despite the fundamental lack of economic data released in the Euro-zone. From a strictly technical perspective, the Euro has spent the last few trading sessions consolidating below the trend support at 1.4600 against the Pound but a sharp bounce back towards 1.4650 yesterday could help turn the technical outlook positive. In terms of economic data, the single currency may receive a timely boost this morning as the ZEW centre for economic research release the monthly expectations balance, which is expected to confirm that German investor confidence rose this month. The current conditions measure of the ZEW survey will be of particular interest to investors as the German economy continues to enjoy a period of rapid growth with the report this morning expected to increase the chances of further monetary tightening.

The renewed appetite for the Dollar continued yesterday as the U.S currency again made crucial gains against the Euro and also rose 0.3% versus the Pound to briefly trade under 1.9700. In recent months, the Dollar has declined to the lowest level in 26-years against the Pound and also fallen to a record low versus the Euro amid fears that global central banks may diversify their foreign exchange reserves away from the U.S currency. In addition, the dramatic slowdown in the housing and manufacturing sectors threatened to push the economy towards inevitable recession but recent reports have provided an indication that a weak Dollar is boosting demand for U.S exports while the downturn in the property market looks to have peaked.

Data Released 22nd May

EU 10:00 Trade Balance (March)

GER 10:00 ZEW Expectations Balance (May)

written by Adam Solomon