Daily Insight

The Euro managed to claw back some modest gains against the Pound and also rose versus the U.S Dollar as German consumer confidence unexpectedly leaped to the highest level in six months in June. The index of sentiment jumped to a reading of 8.4 from 7.4 the previous month and suggests that increased confidence in the German economy is propelling consumer spending. Recent reports after provided an indication that growth in Europe's largest economy may have peaked but with spending showing robust signs of growth and unemployment at a record low, German economic expansion may continue at the fastest pace in six years. That sentiment was echoed by the Ifo economic institute, who last week reported that German business confidence unexpectedly declined this month as exports and business investment waned. However, the Munich based institute yesterday raised its growth forecast from 1.9% last December to 2.6% this year while German economic growth is likely to hit 2.5% in 2008. The report provides an indication that the economy will continue to expand despite the introduction of the value-added tax increase at the start of the year and the inevitable drop in European exports.

Initially, the Pound continued to rise against the Dollar yesterday, testing the $2.00 level for the majority of the morning session before consolidating back towards the support at 1.9950. Earlier this year, the Pound reached the highest level against the U.S currency for 26-years at 2.0130 and there is a distinct possibility that we may retest that level amid speculation that the Bank of England will raise rates next month. Following the fundamental lack of UK economic data, the Pound also lost ground against the Euro, dropping 0.2% by the close of trading last night. Nevertheless, there is a number of key data releases over the remainder of the week with the Nationwide and Hometrack house price surveys taking centre stage. Both reports are expected to emphasise the robust pace of growth in the sector while the Bank of England's report on UK mortgage approvals may prove slightly less positive.

By the close of trading last night, the Dollar remained virtually unchanged against the Euro and also consolidated back towards 1.9950 versus the Pound following the latest round of U.S housing data. Existing home sales fell to the lowest level in nearly four years in May, reinforcing concerns that the worst slump in over 17-years has yet to peak with purchases dropping 0.3% from April. A separate gauge of the report showed that the supply of unsold homes swelling the market jumped to the highest number in 15-years as weakening demand combined with a decline in home construction make the housing market the single biggest threat to U.S economic growth. Nevertheless, the report yesterday was almost in line with initial expectations and therefore, the data failed to provide any clear direction to investors. As a result, the focus today will fall heavily on the new homes sales report, which is expected to show that purchases also dropped in May. Following the unexpected jump in the number of new home sales in April, the latest round of housing data has all but ended the recent speculation of a recovery in demand.

Data Released 26th June

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

U.S 15:00 Consumer Confidence (June)

written by Adam Solomon