Daily Insight

The Pound remained largely unchanged against the majors yesterday, holding steady around 1.4700 versus the Euro and rising modestly towards 1.9800 against the U.S Dollar despite another round of poor economic data. A report from the Bank of England showed that UK mortgage approvals fell considerably in April with lenders granting 107,000 home loans compared to a revised 112,000 the previous month. The report coincides with recent figures from the British Bankers' Association, which have shown that loans for home purchases have dropped to the lowest level in a year as the Bank of England continue to lift UK interest rates. In addition, the Central Bank are widely expected to raise the benchmark lending rate by a further 25 basis points over the coming months and a separate report yesterday showed that consumer credit dropped to the lowest in a decade. Recent reports from the Confederation of British Industry have shown a slump in retail sales over the past month and consumer spending is beginning to show signs of slowing after propelling the UK economy to fastest pace in 2-years.

The Euro received an unexpected boost yesterday and managed to consolidate on the recent gains made against Sterling after the EC sentiment index showed an unexpected rise in business and consumer confidence. An index of sentiment in the 13-nations sharing the Euro-zone surprisingly rose to the highest level in nearly six years in May as the jobless rate held close to a record low. Investors had initially forecast that the index would remain unchanged this month while a separate report showed that inflation continued to stay under the European Central Bank's 2.0% ceiling. However, that is not expected to deter the ECB's current monetary policy as the governing council look to raise interest rates for the seventh time since late 2005 in the first week of June. The pace of global expansion combined with rising domestic demand has boosted European exports that has propelled the economy to enjoy the fastest pace of growth in over seven years. However, it is yet unclear how much of an impact the slowdown in the U.S has hampered the demand for European based goods and if exports decline, the ECB will be forced to review their current monetary policy.

The Dollar came under renewed pressure yesterday, snapping a two day winning streak against the Pound as the revised estimate of U.S gross domestic product in the first quarter showed that the economy grew at the slowest pace in over four years. Following the dramatic slump in the housing market combined with a larger trade deficit and reduced business inventories, the economy grew at an annual rate of 0.6% in the first three months of 2007. However, recent economic reports have provided a strong indication that inventories are rising while new home sales in particular have showed signs of accelerating, adding to speculation that the worst slump in housing for over 17-years has finally peaked. In terms of economic data, the focus today will fall squarely on the monthly U.S employment report with the economy expected to add 125,000 jobs to payrolls in May. The Dollar may come further pressure if the report shows that the economy added fewer jobs than forecast while the unemployment rate is expected to stay unchanged at 4.5% and average hourly earnings up 0.3%.

Data Released 1st June

UK 09:30 CIPS Manufacturing Survey (May)

EU 09:00 PMI Manufacturing (May)

EU 10:00 Unemployment Rate (April)

EU 10:00 GDP (Q1 Details)

U.S 13:30 Personal Income / Expenditure (April)

- Core PCE

U.S 13:30 NonFarm Payrolls (May)

- Unemployment / Average Earnings

U.S 15:00 ISM Manufacturing (May)

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

U.S 15:00 Michigan Sentiment (May Final)

U.S 21:00 Domestic Auto Sales (May)

written by Adam Solomon