Daily Insight

The Pound made strong gains against the Dollar yesterday and also managed to stem the losses incurred versus the Euro following a report from the Nationwide Building Society, which showed that UK house prices rose at the fastest pace in three months.

The average cost of a home increased 0.7% in September, compared with a 0.6% rise in August, amid signs that higher credit costs have yet to affect homebuyers. The problems surrounding Northern Rock combined with a global credit market slump and five interest rate increases in the past year have seemingly failed to dampen sentiment as growth in the property market continues to accelerate.

Other reports have sggested that the housing market is beginning to slow as prices rose just 9.0% from this stage last year and to the slowest pace in 11 months.

Elsewhere, the September survey from Citigroup confirmed that public inflation expectations for the next year were at the highest level since January, reaching a reading of 2.6% year-on-year from 2.4% in August.

However, the reports yesterday will have little impact on the Bank of England's monetary outlook but the positive sentiment surrounding the housing market combined with persistant inflationary pressures may prevent the MPC from cutting interest rates in the near-term.

The Euro rose to yet another record high against the Dollar yesterday and as we tentatively approach the 1.4200 level, the recent upside moves in the market has prompted the ECB President Trichet to finally buckle down and talk about the Euro's momentus rise.

A number of ECB policy makers have expressed concerns over the impact of a strong Euro on export growth but Trichet failed to deliver much when he tempered his comments about excess volatility with the reminder that the prospects for Euro-zone growth remain intact.

Basically, the ECB are concerned with the Euro's aggressive rise against the Dollar but at the same time doesn't believe that it will be a major problem as growth in the German labour market remain positive.

The report yesterday showed that the jobless rate had dropped to 8.8% in September from 8.9% the previous month with the amount of people out of wrok falling by 50,000.

However, a seperate report this morning has showed that German retail sales unexpectedly fell in August as higher oil prices and a global increase in the cost of credit threatens the pace of economic growth.

The overwhelming decline of the Dollar continued yesterday as the U.S currency fell to a fresh record low against the Euro and also recorded moderate losses versus the Pound following an abysmal report on the U.S housing market.

New home sales dropped more than initial forecasts in August as prices plummeted by the most in almost 40-years with purchases declining 8.3% on the month. Concerns over subprime mortgage defaults have clouded the outlook for the property market amid higher borrowing cost and heightened credit restrictions.

Not only did sales fall to the lowest level in seven years but the median price of a home also dropped to by the largest amount since 1970. The report yesterday follows an earlier report on existing home sales and collectively they provide strong evidence that the U.S economy will struggle to cope with the housing recession.

The Dollar may find some much needed support this afternoon as the focus switches to the personal income and expenditure report, which is expected to show persistant inflationary concerns while the Chicago PMI may point to growth in the manufacturing sector.

Data Released 28th September

UK 10:30 Consumer Confidence (September)

EU 10:00 EC Economic Sentiment (September)

- Constuction / Industrial Sentiment

EU 10:00 Flash HICP (September)

U.S 13:30 Personal Income / Expenditure (August)

U.S 14:45 Chicago PMI (September)

U.S 15:00 Construction Spending (August)

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

written by Adam Solomon