Daily Insight

The U.S Dollar has continued to consolidate against the majors, rising a further 0.8% versus the Pound over the past trading session after peaking above 2.0600 on Wednesday. The U.S currency made robust gains for the second consecutive day yesterday and it looks increasingly likely that the dramatic decline of the Dollar was severely over-exaggerated as we look to trade back towards the support at 2.0300. The furore surrounding the turmoil in the U.S subprime mortgage and credit markets has been the catalyst behind the Dollar falling to a 26-year low against the Pound and a new record low versus the Euro. A recent spate of negative economic reports has failed to put added pressure on the Dollar with the purchases of new homes in the U.S dropping by more than forecast in June. The news yesterday follows an earlier report, which seems to suggest that the slump in the property market continues to gather momentum as sales plummeted 6.6% last month, the most since January. Elsewhere, a separate report showed that U.S durable goods orders declined for a second month in June as consumer spending slowed and fuel prices rose. Nevertheless, the Dollar remained resilient and we can expect the U.S currency to make further gains today amid the release of the advanced estimate of economic growth in the second quarter.

The Euro snapped a three day losing streak against the Pound yesterday and by the close of trading last night, the single currency had increased 0.3% versus Sterling despite a barren run of European economic data. The Ifo sentiment index showed that German business confidence fell for a second consecutive month in July as the Euro's dramatic appreciation against the Dollar combined with rising oil prices threatens to curb the pace of economic expansion. The European economy has been accelerating at the fastest pace in seven years and has been overly reliant on export growth but the value of the euro is making goods more expensive and therefore curbing demand from overseas. Nevertheless, the Euro did receive a timely boost this morning as German consumer confidence rose to the highest level in eight months as unemployment in Europe's largest economy fell to the lowest level in 12-years.

The Pound has rallied to a fresh 26-year against the Dollar this week and has also risen to the highest level since February versus the Euro on speculation that the Bank of England may raise interest rates to 6.0% next month. However, over the past two trading sessions the UK currency has fallen significantly against most major currencies and from a technical perspective, it looks increasingly likely that the Pound will continue to decline in the near-term. The latest round of housing data has provided a strong indication that higher interest rates are beginning to weigh on the market as house prices rose at the slowest pace in 15 months in July. The cost of a home climbed just 0.1% from June, the smallest month-on-month gain since April last year following a 1.1% increase in June. The Pound fell for a second consecutive day as the report combined with a record £1.3 trillion of consumer debt is beginning to undermine the housing market and consumer sentiment.

Data Released 27th July

U.S 13:30 GDP (Q2 Advance)

- Deflator

- Core PCE

U.S 15:00 Michigan Sentiment (July Final)

written by Adam Solomon