Daily Insight

The Pound lost ground against the Euro yesterday dropping 0.4% by the close of trading last night although the UK currency rose for the sixth consecutive day versus the Dollar and reached the highest level 26-years. Growth in the UK manufacturing sector unexpectedly slowed in June, which suggests that higher interest rates and a strong Pound are beginning to weigh on demand for UK exports. The CIPS survey showed that growth in the sector surprisingly slipped to a reading of 54.3 in June from a revised 54.7 the previous month and although a figure above 50 indicates expansion, the pace of growth in factory production seems to be slowing. The Bank of England have recently expressed concerns that faster economic growth is likely to encourage companies to continue raising prices and thusly fuelling the current inflationary pressures. Therefore, the Bank of England are widely expected to lift UK interest rates for the fifth time since August and increase the pressure on manufacturers, who are already struggling with the Pound's 9% appreciation against the Dollar over the past year. Dollar buyers would well placed to take advantage of the current rate and will be able to achieve the most attractive rate of exchange since September 1981.

The Euro rose to within a whisker of the April record high against the Dollar yesterday and also made robust gains versus the Pound as manufacturing growth in the Euro-zone accelerated by more than initially expected in June. The Purchasing Managers' index of factory output rose to a reading of 55.6 last month and underpinned expectations that the European Central Bank will raise interest rates beyond 4.00%. Over the past five years, the global economy has expanded at the fastest pace in over 30-years and demand from the U.S has heavily boosted European exports, which have driven economic growth to the quickest pace since 2000. Elsewhere, the ECB are expected to continue monetary tightening as the recent EC sentiment index showed that business and consumer confidence remained close to a six-year high this month. In addition, the Euro may continue making gains against the majors this morning as a report on the labour market is expected to show that unemployment fell to a fresh six-year low in May.

The U.S Dollar fell against most leading currencies yesterday, dropping to the lowest level in over a quarter of a century versus the Pound amid speculation that U.S interest rates will remain on hold throughout the remainder of the year. The Dollar declined heavily despite a report from the Institute of Supply Management, which showed that U.S manufacturing growth accelerated to the highest level in over a year in June. The ISM index rose to a reading of 56.0 from 55.0 in May but the recent upturn in manufacturing is offset by concerns over slowing consumer spending and prolonged weakness in the housing market. The Dollar fell considerably against both the Euro and the Pound yesterday and that trend may continue this afternoon following a report from the Commerce department. U.S durable goods orders are expected to fall for the first time in four months in May with bookings dropping a massive 1.2% following a 0.3% rise in April.

Data Released 3rd July

EU 10:00 Producer Price Index (May)

EU 10:00 Unemployment Rate (May)

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

U.S 15:00 Factory Goods Orders (May)

written by Adam Solomon