Daily Insight

The Pound remained largely unchanged against the majors yesterday, closing back under 1.9700 versus the U.S Dollar despite an initial positive move after a report showed that UK retail sales growth accelerated beyond expectations in May. Sales climbed 0.4% last month following a modest decline in April as lower unemployment, rising house prices and increased optimism over the pace of economic growth helped fuel consumer spending. The report comes in the aftermath of a speech from the governor of the Bank of England, Mervyn King, who signalled earlier this week that UK interest rates may need to rise at least once more this year. In addition, a report earlier this week showed that UK unemployment has reached the lowest level since September 2005 and with consumer confidence currently running at the highest level for 18-months, the likelihood of a rate hike in July or August seems almost certain.

However, the Pound failed to make any gains against both the Euro and the Dollar as a report from the Royal Institution of Chartered Surveyors showed that UK house prices rose at the slowest pace in a year last month. Prices have risen 10% in the space of 12 months and the report yesterday is just the latest indication that higher interest rates are beginning to weigh on the UK property market. The average cost of a home in the UK rose to £196,893 in the quarter through to May, increasing to an annual rate of 10.6% according to the UK's biggest mortgage lender. Amid a sparse supply of economic data, the Pound may continue to trade down against the Euro today after closing last night under 1.4800 level.

The Dollar managed to consolidate against the majors yesterday, rising a further 0.1% versus the Pound and holding at an 11-week high against the Euro amid speculation that the Federal Reserve may need to tighten interest rates towards the end of the year. The U.S currency received a further boost as producer prices rose by more than anticipated in May as record fuel prices threatens a pick-up in inflation. Prices paid to U.S companies increased 0.9% last month and the report reflects recent comments from the Federal Reserve that inflation won't moderate as previously forecast. There is a host of significant economic data released in the U.S this afternoon with the focus falling on the consumer price index, which is expected to show that a broader measure of inflation rose 0.6% in May. Elsewhere, the Dollar may continue to make gains against the majors as a separate report may show that sentiment remains strong in the industrial sector.

Data Released 15th June

EU 10:00 Trade Balance (April)

U.S 13:30 Current Account (Q1)

U.S 13:30 Consumer Price Index (May)

- Ex Food & Energy

U.S 13:30 Empire State Index (June)

U.S 14:00 TICs - Net Capital Inflow (April)

U.S 14:15 Industrial Production (May)

U.S 15:00 Michigan Sentiment (June Prelim)


written by Adam Solomon