Daily Insight

The Pound rose for a third consecutive session versus the Dollar yesterday, rising a further 0.2% to peak at a fresh 26-year high at 2.0405 before consolidating back below that level towards the close of trading. Elsewhere, Sterling also rose modestly against the Euro on speculation that UK inflation exceeded the Bank of England's 2.0% target for a 14th consecutive month. Recent reports have shown strong growth in oil prices and potential rises in food costs, which suggests that expectations of a sharp fall in consumer price inflation may be unfounded. The headline measure is expected to show that prices rose 2.3% from this stage last year after climbing 2.5% in May and the Pound may continue to appreciate against the majors on speculation that UK rates will peak at 6.0% this year. Elsewhere, the positive sentiment surrounding the Pound continued to gather momentum yesterday in spite of a report from the DCLG, which seemed to suggest that UK house price inflation may have peaked. The survey showed that house prices rose to an annual 10.9% in May, down from 11.3% the previous month as higher interest rates seems to be cooling demand.

The Euro failed to consolidate on the recent gains made against the majors yesterday, slipping 1.0% versus the Dollar after flirting with a fresh record high earlier in the session. The final estimate of the Euro-zone consumer price index showed that inflation had remained below the ECB's 2.0% ceiling for a tenth consecutive month, standing unchanged at 1.9% in June. Although the report fell completely in line with initial expectations, the Central Bank has recently expressed concerns that annual inflation growth will begin to accelerate and therefore justify any further monetary tightening. However, by the close of trading last night the Euro stood just 0.1% lower against the Pound following a particularly hawkish statement from ECB board member Guy Quaden, who said that the Euro's dramatic appreciation against the Dollar was "not incomprehensible." In terms of economic data, the Euro may come under further pressure this morning as German investor confidence may have fallen for a second consecutive month in July.

By the close of trading last night, the Dollar had recovered from a near record low against the Euro and bounced back from a 26-year low versus the Pound as the U.S currency received some support from an unexpected rise in Manufacturing. The regional Empire State index showed that factory production in the New York area expanded at the fastest rate in year this month as orders accelerated and unemployment remained low. The economic index rose to a reading of 26.5, the highest since June 2006 as companies stepped up production and hiring in order to meet demand from overseas. A sharp rebound in manufacturing combined with robust growth in the labour market will help the economy recover from the worst slump in housing for over 17-years. That sentiment may be further echoed this afternoon as another Fed report is expected to show that U.S industrial production rose 0.5% last month after remained largely unchanged in May.

Data Released 17th July

UK 09:30 Consumer Price Index (June)

- Retail Price Index

GER 10:00 ZEW Expectations Balance (July)

U.S 13:30 Producer Price Index (June)

U.S 14:00 TICs Net Capital Inflows (May)

U.S 14:15 Industrial Production (June)

U.S 18:00 NAHB Housing Market Index (July)

written by Adam Solomon