Daily Insight

The positive momentum surrounding the Pound continued yesterday as the UK currency rose to yet another 26-year high against the Dollar and looks to set to continue making gains amid increased speculation that UK interest rates will rise to 6.0% by the end of the year. Despite the fundamental lack of economic data, the Pound rose a further 0.4% against the Dollar and remained largely unchanged versus the Euro by the close of trading last night. In terms of economic data, the Pound may receive a further boost this morning ahead of the RICS house price balance, which is expected to show that prices remained fairly elevated in June. The Bank of England have raised UK interest rates to the highest level since 2001 over the past 11-months but recent surveys suggest that house price inflation continues to accelerate. Elsewhere, the BCC quarterly manufacturing survey is expected to show that growth in the sector accelerated in the three months to June although the overwhelming strength of the Pound threatens the pace of UK exports.

The Euro reached a record high against the Dollar on Tuesday and that trend looked set to continue yesterday following a particularly hawkish rhetoric from an executive board member of the ECB's governing council. Jurgen Stark gave a speech in Frankfurt where he reiterated that the Euros 10% appreciation against the Dollar this year reflects the overall strength of the Euro-zone economy. His comments seemed to suggest that policy makers were concerned over the incredible strength of the single currency and the subdued effect that it would have on European exports. Sales abroad has accounted for the fastest pace of economic growth in seven years and recent reports have indicated that growth in Euro-zone exports is fairly muted. Nevertheless, the Euro rallied against the Dollar and remained largely unchanged versus the Pound ahead of a host of significant economic reports. The ECB monthly bulletin is expected to mirror the tone of the press conference last week while Euro-zone industrial production may expand 1.0% in May.

The Dollar has been under intense pressure against the majors this week, dropping to the lowest level in over a quarter of a century versus the Pound and falling to a record low against the Euro amid a host of negative economic data. In addition, recent reports have indicated that inflation risks to remain to the upside but the slump in the property market is expected to keep U.S interest rates on hold at 5.25% for the remainder of the year. The Dollar may come under further pressure this afternoon and extend the recent losses against both the Euro and the Pound following the release of U.S trade data. The deficit in goods and services may widen to $60 billion in May despite the overwhelming weakness of the U.S currency, which should provide a boost to exports.


Data Released 11th July

UK 11:00 BCC Quarterly Manufacturing Survey (Q2)

EU 09:00 ECB Monthly Bulletin Published

EU 10:00 Industrial Production (May)

EU 10:00 Final GDP (Q1)

U.S 13:30 Initial Jobless Claims (w/e 7th July)

U.S 13:30 Trade Balance (May)

written by Adam Solomon