Daily Insight

The Pound remained largely unchanged against the Euro yesterday but continued the downward move versus the Dollar despite a stronger-than-expected report on the UK housing market and evidence of a revival in mortgage approvals. Recent surveys from Rightmove plc and Nationwide have shown that house prices rose at the slowest pace in 15-months in June, which suggests that higher interest are beginning to take effect. The Bank of England's monetary policy committee are expected to leave UK interest rates unchanged at 5.75% this Thursday as policy makers await further evidence that higher borrowing costs are beginning to slow the economy. Many households face the daunting prospect of renewing fixed-rate mortgages at much higher levels with the Bank of England expected to lift UK interest rates to 6.0% over the coming months. As a result, we can expect a significant squeeze on consumer spending and the Gfk gauge of confidence this morning will provide a timely insight on sentiment. Elsewhere, the Pound may continue to decline against the Dollar as we fall towards 2.0200 following last week's 26-year high amid the release of the CBI distributive trades balance, which is expected to fall to a reading of 15.0 this month.

The recent recovery of the U.S dollar continued yesterday on speculation that the recent turmoil in the subprime mortgage and credit markets would spread to other economies. Despite a spate of negative economic reports, which seemed to suggested that the slide in the property market is showing few signs of peaking, the Dollar remained resilient and made robust gains against the Pound following a 26-year low of 2.0650.
Money market have been pricing in a cut in U.S interest rates in the near-to-medium term and today brings the Fed's preferred measure of inflation, the core personal consumption expenditure deflator, which is expected to remain unchanged at 1.9%.

The Euro staged a dramatic rebound against the Dollar yesterday and managed to remain firm versus the Pound despite a host of weaker economic data. French producer price inflation and retail sales for July deteriorated, which provides further evidence that the overwhelming strength of the Euro is finally weighing on economic growth. Nevertheless, the single currency stood firm amid increased speculation of a surprise ECB press conference this Thursday. The chairman of the Central Bank, Jean-Claude Trichet is expected to keep European interest rates unchanged at 4.0% but investors will focus on the tone and language used in the accompanying press conference for an insight into the possibility of a rate hike in September. In terms of economic data, the Euro may continue to make gains against the Dollar this morning as the unemployment rate is expected to remain at the low of 7.0% while the EC sentiment index may point to robust growth in consumer and industrial confidence.

Data Released 31st July

UK 10:30 GFK Consumer Confidence (July)

UK 11:00 CBI Distributive Trades Balance (July)

EU 10:00 Unemployment Rate (June)

EU 10:00 EC Sentiment Index (July)

- Industrial/Consumer Confidence

- Business Climate Index

EU 10:00 Flash HICP (July)

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

- Core PCE Deflator

U.S 14:45 Chicago PMI (July)

U.S 15:00 Consumer Confidence (July)

U.S 15:00 Construction Spending (June)

written by Adam Solomon