Daily Insight

Following on from last week, the lacklustre performance of the Pound continued despite the hawkish tone of the Bank of England's quarterly inflation report, which seemed to suggest that a further tightening of monetary policy would be required in the near-to-medium term. That sentiment is expected to be further emphasised in the minutes from the Central Bank's last policy meeting released on Wednesday. The nine strong committee elected to lift UK interest rates by a further 25 basis points this month and the voting pattern of the eventual decision will be eagerly anticipated. The monetary policy committee are expected to have voted 8-1 in favour of a rise this month with the likely dissenter being David Blanchflower. However, should the outcome of the minutes prove indecisive and the committee's decision split, the Pound may come under some severe pressure against both the Euro and the Dollar. In terms of economic data, the Pound has fallen modestly this morning as a gauge of UK house prices rose this month at the slowest pace since December. Prices only climbed 0.4% to an average £237,361 compared to a 3.5% gain in April and the report provides an indication that an increase in supply combined with higher interest rates are slowly helping to cool the property market.

The resurgence of the Dollar has been the general theme over the past couple of weeks as the U.S Currency continues to make robust gains against both the Pound and the Euro. Confidence in the U.S economy has been somewhat restored over the past month as the rebound in manufacturing continues to gather momentum while the worst slump in housing for over 17-years is showing some signs of abating. There is a sparse supply of economic data released in the U.S this week with the focus falling on durable goods orders and the latest round of housing sales data.

The Euro has continued to make rapid gains against Sterling over the past week as we look to test the support level around 1.4600 while the single currency has come under some surprising pressure versus a resurgent U.S Dollar. That theme is set to continue over the coming trading sessions as a host of economic reports are expected to confirm further that the German economy performed better than previously anticipated. The current conditions measure for the ZEW survey of investor confidence is forecast to rise to a reading of 79.0 from 76.9 the previous month. In addition, the IFO survey for business sentiment is also expected to rise to a record level in May with both indices likely to strengthen expectations that European interest rates will continue to rise beyond June.

Data Released 21st May

UK 09:30 PSNCR (April)

written by Adam Solomon