Daily Insight

The Pound continued to make substantial gains against the Dollar yesterday, rising 0.6% on the session to close last night at the strongest level in over 26-years. Earlier in the day, the positive sentiment surrounding the Pound continued as UK retail sales increased by the most in three months in June, proving that consumer spending is resisting rising interest rates. The report from the British Retail Consortium showed that sales rose 3.0% from this stage last year following a 1.8% increase in May and it can be argued that consumer spending is buoyant in anticipation of further rate hikes to come. The Bank of England's monetary policy committee have elected to raise borrowing costs on five separate occasions in under a year and have recently indicated that another quarter-point rise may be necessary over the coming months.

Consumer price inflation, which accelerated to the fastest pace in a decade in April, has been showing signs of moderation but policy makers feel that interest rates will need to rise once more in order for inflation to come back towards the 2.0% target. The recent speculation surrounding UK monetary policy combined with sustained Dollar weakness has sent the Pound crashing through the $2.0200 level and to the strongest level of exchange since June 1981. Therefore, Dollar buyers would be well placed to take advantage of the current rate or at least place a stop order above the $2.00 level to ensure against a reversal.

The Dollar also slumped against the Euro yesterday, dropping to the lowest level on record versus the single currency as profit warnings in the U.S heightened concerns over the housing market, subprime mortgage defaults and consumer sentiment. The well documented slump in the U.S property market has been the primary factor for a slowdown in the economy. Therefore, confidence in the U.S currency was further undermined yesterday as an announcement from Standard & Poor, the credit rating agency, said that it may be cutting ratings on almost $12 billion on bonds backed by subprime mortgages. The news sparked a mass sell off of securities on concerns that the rating cut will have broader implications for U.S and global markets. Elsewhere, even a speech from the chairman of the Federal Reserve, Ben Bernanke, failed to provide a boost to the ailing U.S currency as he failed to give any direction on the course of U.S interest rates.

Data Released 11th July

(Nothing of significance)

written by Adam Solomon