Daily Insight

The positive sentiment surrounding the Pound continued yesterday as the UK currency rose a further 0.3% against the Dollar and was up 0.2% versus the Euro by the close of trading last night following a pickup in UK house prices. Despite the pace of growth slipping to slowest pace in five months throughout London, prices gained 0.8% throughout the remainder of the UK with the annual rate increasing 13.2% from this stage last year. The report illustrates that while mortgage approvals have fallen, rising interest rates have yet to cool the housing market as property values accelerate at the fastest pace in almost three years. Elsewhere, the Pound managed to make further gains against the most of the major currencies as the Bank of England's quarterly bulletin seemed to mirror recent comments from the governor, Mervyn King, and increase the chance of further monetary tightening in the near-to-medium term.

The Euro managed to edge modestly higher against the U.S Dollar yesterday but came under further pressure versus the Pound despite a host of hawkish commentaries from a number of ECB officials. Firstly, a member of the Central Bank's governing council, Alex Weber, stated that risks to inflationary pressures remain a concern to policy makers while tightening interest rates wouldn't affect the pace of economic growth. That sentiment was echoed by the chairman of the ECB, Jean-Claude Trichet, who reiterated that faster growth in the global economy was exerting upward pressure on prices. As a result, the Euro advanced 0.1% against the Dollar on speculation that European interest rates may rise to 4.0% this year while the single currency may continue to make gains this morning amid the release of the ZEW survey for investor confidence. The index of investor and analyst expectations is forecast to top the highest level since June 2006 as growth in the German economy accelerated at the fastest pace in almost seven years.

The Dollar continued to slide against the majors yesterday as the inflation outlook moderated following the report on consumer prices, which came in weaker than expected in May. As a result, the Federal Reserve are likely to keep interest rates unchanged this year as pricing pressures continue to moderate while the economy expands at a moderate pace. The Dollar had been making robust gains early last week following the rapid increase in the treasury yield, which reached a five-year high on speculation that the Fed may need to raise rates towards year-end following a pick-up in manufacturing and recent reports that the slump in housing had peaked. However, a report last night exacerbated the slump in Dollar sentiment as the NAHB housing market index showed that homebuilding confidence was at the lowest level in nearly 16-years. In addition, the U.S currency may come under further pressure this afternoon as a separate report on the property market may show that builders started work on fewer homes than expected in May. U.S housing starts may fall to an annual rate of 1.472 million last month, modestly higher that the previous quarter where builders started work in the fewest number of homes since 1997.

Data Released 19th June

GER 10:00 ZEW Expectations Balance (June)

U.S 13:30 Housing Starts (May)

written by Adam Solomon