Daily Insight

The Pound hit a two-week high against the Dollar yesterday and also rose to a fresh three-month high versus the Euro following the release of the minutes from the Bank of England's last policy-setting meeting. The report illustrated that the governor of the Central Bank, Mervyn King, favoured a rate increase this month with the committee voting 5-4 to keep interest rates unchanged at 5.50%. Therefore, the governor, who in the event of a spilt decision has the casting vote, was placed in the minority for the first time in nearly two years. The contrast in sentiment among the nine-strong committee has increased speculation that UK interest rates are set to rise a further 25 basis points in July as the economy continues to show strong signs of growth. Mervyn King, Timothy Besley, John Gieve and Andrew Sentence argued for a quarter-point increase in June but were overruled as the remaining policy makers cited slower consumer spending and house price growth as the primary reason for holding rates this month. However, the latest round of housing data has showed that prices continued to rise throughout the majority of the UK and that may sway the monetary policy committee to increase borrowing costs to a fresh six-year high next month. In terms of economic data, the Pound may continue to make gains this morning as a report from the Confederation of British Industry is expected to show prolonged upward pressure on pricing measures, due in part to higher oil prices.

The Dollar continued to decline against the Pound yesterday, plummeting back towards the $2.00 level while the U.S currency also failed to capitalise on the Euro amid a sparse supply of economic data released in the States. Nevertheless, the U.S currency may receive a minor boost this afternoon as a gauge of leading U.S economic indicators is forecast to strengthen last month as stock prices jumped while the number of people filing for unemployment benefits unexpectedly dropped. The index is forecast to rise 0.2% in May following a significant fall the previous month and points to the direction of the U.S economy in the next six months.

The Euro remained relatively unchanged against the Dollar yesterday but continued to slide against the Pound, dropping to the lowest level since mid-March following the unexpected decline of German investor confidence. The single currency also failed to make any gains this morning as the flash estimate of the European purchasing manager's index showed that growth in manufacturing and the service sector unexpectedly rose in June. Growth in services, which accounts for two-thirds of the economy, accelerated at a rapid pace amid record low unemployment and increased business investment. The index rose to a reading of 57.7 from 56.8 the previous month despite growing concerns that the European economy had reached a plateau amid higher interest rates and rising energy prices. Nevertheless the fastest pace of global expansion in 30-years has provided a much-needed boost to European exports, which has been the principle driver of European economic growth.

Data Released 21st June

UK 11:00 CBI Monthly Trends (June)

U.S 13:30 Initial Jobless Claims (w/e 16th June)

U.S 15:00 Leading Indicators (May)

U.S 17:00 Philly Fed Index (June)

written by Adam Solomon