Daily Insight

The very recent revival of the Pound continued yesterday as the UK currency rose a further 0.7% against the U.S Dollar and an additional 0.4% versus the Euro following the release of the minutes from the Bank of England's last policy meeting. The report revealed that the monetary policy committee voted unanimously to raise UK interest rates in May to the highest level in 6-years in an attempt to curb inflation. The accompanying statement seemed to suggest that a further tightening of UK interest rates would be required in the near future with the nine-strong committee agreed that the economy may continue to expand. The voting pattern of this month's announcement has surprised investors as it was widely anticipated that at least one member would vote against a May rate increase. Therefore, a back-to-back rate rise in June has become a real possibility although it is more likely that the Central Bank would look to raise in July or August and assess the impact of four previous rate hikes. The Pound rallied strongly in the aftermath of the report and may continue to make gains this morning following a report from the Confederation of British Industry.

The Euro continued to decline against Sterling yesterday but bounced back versus the Dollar, rising 0.3% by the close of trading last night following a surprisingly strong surge in European industrial orders in March. In addition, the single currency also received a timely boost as German business confidence held near a record level in May, which suggests that the German economy will continue to expand at the fastest pace in nearly a decade. The Ifo sentiment index remained unchanged at a reading of 108.6 this month despite initial forecasts of a moderate rise towards the highest level since record began in 1991.

The recent positive sentiment surrounding the Dollar has deteriorated this week as the U.S currency fell for a second consecutive day following the distinct lack of economic data released in the States. However, the Dollar may find some support this afternoon as a report may show that orders for U.S durable goods is expected to rise for a third consecutive month in April. A sustained rebound in manufacturing is helping demand for factory goods and business equipment and may neutralise the worst slump in housing since 1990, which has threatened to propel the economy to the brink of recession. The chairman of the Federal Reserve, Ben Bernanke, has previously stated that a drop in subprime mortgage lending is likely to curb growth in home sales this year and that sentiment is expected to be echoed in separate report from the Commerce Department. Sales of new homes may of remained near a seven-year low in April, rising to an annual rate of 860,000 as home construction sees its worst recession since January 1990.

Data Released 24th May

UK 11:00 CBI Monthly Trends (May)

U.S 13:30 Initial Jobless Claims (w/e 19th May)

U.S 13:30 Durable Goods Orders (April)

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

written by Adam Solomon