Daily Insight

Following on from the last week, the Pound managed to rebound sharply against the majors by the close of trading on Friday after falling to a fresh six-week low versus the Euro earlier in the week. The positive sentiment surrounding the Pound stemmed from the release of the minutes from the Bank of England's last policy meeting, which showed that the committee voted 7-2 in favour of a no change in rates this month with the two dissenters recommending a further quarter-point rise. Combined with the quarterly inflation report, it seems increasing likely that the MPC will lift UK interest rates at some stage over the coming months but may take some additional time to assess the impact of three previous rate hikes since last August. There is a host of significant economic reports released in the UK this week with the PMI manufacturing report, consumer confidence and the CBI distributive trades survey all expected to provide some insight in the chance of rate hike in March. The Pound has received a further boost this morning as UK house-price inflation accelerated at the fastest pace in over three years in February as the underlying issue of supply and demand keeps prices rising. According to the Hometrack survey, house prices rose 6.4% year-on-year last month, which represents the biggest yearly increase since 2003 while prices rose 0.7% on the month.

The Euro came under further pressure against the Pound towards the end of the week following a worse than expected report on German business confidence, which fell by more than initial forecasts, providing an indication that economic growth is slowing from the fastest pace in six years. The Ifo sentiment index declined to a reading of 107 from 107.9 in January following the value-added tax increase at the start of 2007, which threatens to weigh on consumer spending as retail sales slump and manufacturing loses momentum. There is a host of economic data released in the Euro-zone this week with the focus falling on the EC sentiment surveys, manufacturing PMI and the M3 money supply, which provides an indication of inflation. Money supply growth into the Euro-region is expected to reflect strong growth, which may pose an increased risk to price stability and may prompt the ECB to quicken the pace of monetary tightening. The Euro has managed to remain virtually unchanged against the majors this morning despite damaging report on German consumer confidence, which unexpectedly fell to the lowest level in 14-months.

The Dollar came under increased pressure last week, falling heavily against both the Euro and the Pound following a distinct lack of economic data released in the States. However, there is a plethora of significant reports released this week, which are set to challenge the Fed's view of the economy showing strong growth combined with moderating inflationary pressures and the stabilisation of the U.S housing market. A gauge of consumer confidence, released tomorrow, is widely expected to decline heavily in January following higher petrol prices and a significant rise in jobless claims over the same period. While elsewhere, the focus will fall heavily on the core personal consumption expenditure deflator, which is the Federal Reserve's preferred measure of inflation and is expected to rise above 2.2% last month. Persistently high core inflation will keep the Fed on red alert with regards monetary policy and may revive speculation of a further rise in U.S interest rates. Elsewhere, existing and new home sales along with the January construction spending report will be watched closely for any insights into the pace of activity in the housing sector, which has suffered the worst slump in 17-years.

Data Released 26th February

GER 07:00 Gfk Consumer Confidence (March)

written by Adam Solomon

The Dollar managed to rebound sharply against the Euro yesterday, gaining 0.2% against the single currency but by the close of trading last night was modestly lower versus the Pound following the release of the minutes from the Federal Reserve's January policy meeting. The Open Market Committee seemingly remained vigilant on inflation last month with all of the members agreed that a further tightening of interest rates may be necessary if risks to price stability remained. That sentiment was echoed in the recent consumer price index, which showed that inflation had risen by more than anticipated last month. However, the positive sentiment surrounding the Dollar is unlikely to last as the balance of economic reports is expected to lean towards the weak side, which will prompt further speculation that the next likely move for the Fed will be a cut in rates. In terms of economic data, the Dollar shrugged off a separate report, which showed that U.S jobless claims fell by less than expected in the last week, providing further evidence of a slowdown in the labour market. According to the Labour Department, initial claims fell by 27,000 to an annual rate of 332,000 and concerns may ease that relatively low unemployment will increase wage demands and thusly stoke inflation.

The Pound managed to claw back further gains against the Euro yesterday and also closed higher last night versus the Dollar as a report showed that UK business investment grew at its fastest pace in over 10-years in the fourth quarter of 2006. The renewed sentiment for the Pound may continue this morning as the revised estimate for UK GDP may showed that economic growth remained at robust levels in the fourth quarter and confirm an above trend growth of 3.0%. The Pound has managed to rebound against the majors over the past 48hrs following the release of the minutes from the Bank of England's last policy meeting, which only emphasised the need for a further quarter-point rise in rates over the coming months.

The Euro declined for a second day in succession yesterday, falling to a one-week low against the Dollar and falling a further 0.2% versus the Pound despite a selection of positive economic reports. French business confidence rose by more than anticipated in February with the gauge of optimism rising to a reading of 107 this month while an index of Italian confidence also rose beyond expectations. The reports will only provide further evidence that the fastest European economic growth in six years will continue to accelerate and maintain its momentum. However, the Euro failed to consolidate the recent gains made and after testing support around 1.4800 against the Pound earlier this week, the single currency has declined heavily suggesting we made trade higher in the coming weeks. In terms of economic data, the Euro may receive a boost this morning following the release of the German Ifo index, which is expected to show that business sentiment remained at an elevated level this month. The index may drop modestly from January but it is forecast to remain at levels consistent with strong growth.

Data Released 23rd February

GER 09:00 Ifo Index (February)

UK 09:30 Gross Domestic Product (Q4 Revised)

written by Adam Solomon

Initially, the Pound declined against the majors, dropping a further 0.2% against both the Euro and the Dollar following the release of the minutes from the Bank of England's last policy-setting meeting. The monetary policy committee voted 7-2 in favour of keeping interest rates on hold at 5.25% this month with the two dissenters favouring a further quarter-point increase with rates still at a "modest" level. However, the majority of the panel, led by the governor Mervyn King, stated that more time was required in order for the economy to absorb the three previous rate increases since August last year. Recent economic reports have shown a considerable drop in retail sales over the past month combined with evidence of a slowdown in the UK housing sector while consumer price inflation has also moderated to the biggest month-on-month decrease in four years. Therefore, the Bank of England anticipate that inflation will drop towards the 2.0% target in the fourth quarter of this year while the minutes combined with the quarterly report last week have signalled that one further quarter-point increase would be necessary at some point over the coming months. As a result, the Pound declined against both the Euro and the Dollar on the release of the minutes but by the close of the European session had finished the day virtually unchanged against both major currencies. In terms of economic data, the Pound received a boost as a separate report from the Confederation of British Industry indicated that UK manufacturing orders had reached the highest level in 12-years this month.

The Euro has remained relatively unchanged against the majors following a distinct lack of economic data released in the Euro-zone. However, the single currency may receive a boost this morning as the revised estimate for German economic growth is expected to rise to an annual rate of 3.7% as the economy outperforms initial expectations, achieving the fastest expansion in six-years. Elsewhere, a separate report may show a further increase in European industrial orders, which is widely expected to increase by 0.5% in December following a substantial 1.4% rise the previous month.

The Dollar failed to capitalise on a report yesterday from the Labour Department, which showed that U.S consumer prices rose by more than anticipated in January with prices excluding the volatile food and energy gauge rising 0.3%, the most since June last year. The index was expected to increase just 0.2% in January but the report will only fuel speculation that inflationary pressures persist despite recent comments from the Federal Reserve suggesting inflation will continue to moderate. Elsewhere, the Dollar also failed to find some support as a gauge of leading U.S economic indicators rose for a second month January, the first back-to-back increase in over year. Following a significant rise in consumer sentiment over the same period, the index rose 0.1% after a substantial 0.6% gain in December. The report will provide some direction on the U.S economy over the next quarter and only reiterates recent comments from Fed officials reflecting sustainable economic growth over the coming months.

Data Released 21st February

EU 10:00 Industrial Orders (December)

U.S 13:30 Initial Jobless Claims (w/e 17th February)

written by Adam Solomon

The Pound managed to make significant gains yesterday, rising 0.2% against the Dollar and a surprising 0.3% versus the Euro as we bounced off the major support level around 1.4800 and it now looks increasingly likely that Euro sellers would be well advised to take advantage of the current rate. The unlikely rally was sparked after figures revealed that UK mortgage lending rose strongly in January while mortgage approvals reached record levels over the same period. The reports will provide renewed optimism that growth in the housing sector will be able to supplement three interest rate rises since August last year. However, the Pound may come under some pressure this morning following the release of the minutes from the Bank of England's last policy setting meeting. The MPC left interest rates unchanged at 5.25% and expectations of any further monetary tightening have been undermined by recent reports, which have shown moderating inflationary concerns. The minutes will show how the 9-strong committee voted last month following a split decision to raise interest rates in January. A unanimous vote to keep rates on hold may weigh on sterling sentiment while the tone and language of the report will also provide an insight into future policy. In terms of economic data, a report on the UK manufacturing sector may show a sustained loss of momentum in the first quarter of 2007 with the CBI industrial trends survey expected to show a distinct drop in output.

The Euro managed to make further gains against the Dollar yesterday, rising to a seven-week high against the U.S currency despite German producer prices dropping to a 2-year low in January. The gauge of factory-gate inflation showed moderating risks to price stability but we still expect the ECB to raise interest rates next month, which should provide some support to the Euro. However, the single currency failed to consolidate on the recent gains made against Sterling and dropped back towards the resistance at 1.4875. There is a sparse supply of economic data released in the Euro-zone this morning with the focus falling on the European current account balance, which is expected to remain relatively unchanged in December.

The Dollar came under severe pressure yesterday, dropping significantly against the Pound and the Euro following reports that U.S targets in Iran would extend beyond nuclear sites to include its military infrastructure. The news hampered any fragile dollar sentiment as it raised the risks of attack on U.S interests at home and abroad but the added risk to the lucrative oil supplies in the region would of been the primary catalyst to the dollar weakness. Following a sparse supply of economic data released in the States over the past two days, the Dollar may come under increased pressure this afternoon as Consumer prices probably rose at a slower pace in January. The consumer price index may show that inflationary concerns continue to moderate following a sustained drop in energy prices over the past month. Prices, excluding the volatile food and energy gauge, probably rose 0.2% from December and the report will only reiterate recent comments from Fed officials of moderating economic growth combined with diminishing inflationary pressures.

Data Released 21st February

UK 09:30 BoE MPC Minutes - February Meeting

UK 11:00 CBI Industrial Trends Survey (February)

EU 09:00 Current Account Balance (December)

U.S 13:30 Consumer Price Index (January)

U.S 15:00 Leading Indicators (January)

U.S 13:30 Real Earnings (January)

written by Adam Solomon

The Pound came under further pressure yesterday, falling an additional 0.2% against both the Euro and the Dollar despite the apparent lack of significant economic reports. However, with UK house prices showing the lowest monthly rise in over five years in February, the Pound began the day on the back foot as it seems increasingly likely that higher interest rates are beginning to weigh on growth in the housing sector. The Pound came under further pressure after the Bank of England released a report to a UK parliamentary committee investigating the first 10-years of monetary policy. The focus of the statement centred around the UK current account deficit, which the report said would eventually have to move to balance and this would require a "depreciation of the real effective exchange rate." Sterling fell sharply on the comments, dropping to a fresh six-week low against the Euro but many analysts were quick to point out that the comments would not be a "major issue" for the Pound. There is a real lack of economic data released in the UK this morning with the focus falling on the Public Sector Net Cash Requirement, which may show that the shortfall between public sector revenues and expenditure increased in January.

The Dollar made modest gains against Sterling yesterday and held firm versus the Euro as the American market remained closed for the President's Day holiday. There is a sparse supply of economic data released in the States this week with the focus falling on the inflationary figures tomorrow and the Real Earnings report will also be watched closely with the market anticipating a rise 0f 0.2% in January.

The Euro managed to consolidate the recent gains made against the majors, closing last night relatively higher against Sterling and remained unchanged at six-week high versus the Dollar. It is a quiet week in terms of economic data but the single currency has managed to hold firm this morning despite a surprisingly negative report on producer prices. The ECB have maintained that policy makers will continue to monitor the current risks to price stability and the report this morning is an early indication of price pressures in Europe's largest economy. German producer price inflation decelerated to slowest pace in over two years last month following a significant drop in energy prices over the same period. Prices rose just 3.2% last month, down from 4.4% in December, which represents the lowest monthly increase since December 2004 and with inflation holding below the Central Bank's 2.0% target for five straight months, it will be interesting to gauge how far the ECB can raise interest rates this year.

Data Released 20th Feb

UK 09:30 PSNCR (January)

written by Adam Solomon

Following on from last week, the Dollar continued to decline against the majors, dropping to a fresh six-week low versus the Euro following a string of poor economic reports that have provided yet further evidence that the Federal Reserve will keep interest rates steady over the coming months. Activity in the U.S industrial sector slowed by the most in almost a year in January and on Friday a separate government report showed that producer prices declined by more than expected, falling 0.6% from the previous month. The report provides a further indication that the U.S economy will continue to expand at a moderate pace while inflation remains contained as lower energy prices limit the possibility of companies raising prices. Elsewhere, the negative sentiment surrounding the Dollar was fuelled as a report on the housing sector showed that builders started work on the fewest number of homes since August 1997, sparking fresh concerns that the dramatic slump in housing has yet to peak. There is a sparse supply of economic data released in the States this week with the focus falling on the U.S consumer price index. The headline measure is expected to moderate to 2.1% in January from 2.5% the previous month and the index will only provide further evidence that inflation has continued to drop over the past month.

The Euro has continued to make rapid gains against both the Pound and the Dollar over the past week as speculation that interest rates will rise beyond 3.5% continues to drive the single currency. There is a distinct lack of economic reports released in the Euro-zone this week with the focus falling on the German Ifo index this Friday, which is expected to show that business confidence declined for a second month in February. The Ifo sentiment index may decline to a reading of 107.5 this month from 107.9 in January as the impact of the sales-tax increase combined with higher interest rates threatens to weigh on consumer optimism. However, economic growth in Europe's largest economy is widely expected to accelerate in the final estimate for the fourth quarter on Friday after the fastest expansion in six years in 2006.

The Pound declined heavily against the Euro last week after consumer price inflation fell by the most in four years month-on-month in January while U.K retail sales also declined by the most since 2003. However, the Bank of England quarterly inflation report showed that policy makers may raise interest rates once more this year in order to bring inflation back towards the 2.0% target and therefore the focus this week will fall heavily on the minutes from the last policy meeting. The monetary policy committee was split 5-4 in favour of raising interest rates in January and it will be interesting to gauge how the 9-strong team voted this month. The tone and language of the minutes will also be heavily scrutinized as investors look for any insights into future policy following the unexpected decline in consumer prices over the past month. The Pound has received a timely boost this morning as a gauge of UK property price inflation accelerated by more than anticipated in February. Despite interest rates rising three times since last August, the issue of supply and demand continues to dominate with prices rising 0.9% in January according to the Rightmove house price survey.

Data Released 19th February

UK 00:30 Rightmove House Prices

U.S President's Day Holiday

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written by Adam Solomon

Following the Bank of England's quarterly inflation report earlier this week, the Pound had managed to make some modest gains against the majors as the governor of the Central Bank, Mervyn King, indicated that a further quarter-point rate increase maybe necessary this year. However, any positive momentum was crushed in early trading yesterday as Sterling fell 0.6% against the Euro to close well under 1.4900 last night while also declining 0.5% versus the U.S Dollar. The sell-off was sparked by a particularly negative report on the UK retail sector, which showed that sales unexpectedly dropped by the most in four years in January. Sales declined 1.8% despite initial expectations of 0.4% increase and the report suggests that higher energy bills and rising interest rates are beginning to weigh heavily on consumer sentiment.
As a direct result of the report, Sterling dropped to lowest level against the Euro in five weeks and also traded down against the dollar as a separate industry survey showed that UK house prices accelerated at the slowest pace in seven months. However, with economic growth accelerating to the fastest pace in well over two years, workers are likely to demand high wages and a report from the IRS this morning shows that settlements reached the highest level in eight years in January, which will only add to the current inflationary pressures.

The Euro managed to make further gains yesterday, rising to a fresh six-week high against the Dollar despite the apparent lack of any significant economic reports in the Euro-zone. The ECB published their monthly bulletin, which only reiterated the hawkish sentiment with regards a further rise in European interest rates next month and therefore, didn't have too much bearing on market movement. The Euro has received a further boost this morning as final estimate for German consumer prices showed that inflation accelerated in January following the introduction of the sales-tax increase at the start of the year. Prices rose 1.8% year-on-year last month and with lower energy costs and declining unemployment providing support to consumer spending, we can expect Euro-zone interest rates to continue to rise beyond March.

There was a host of significant economic reports released in the States yesterday with the focus falling on U.S industrial production, which showed that output fell by the most in almost a year in January. U.S factory production dropped 0.5% against expectations of 0.2% gain and the report will only support the Fed's view that the economy will continue to expand at a slower pace while inflation will also moderate further over the coming months. A separate report from the Federal Reserve showed that manufacturing in the Philadelphia region also slowed in February with orders dropping to a reading of 0.6 in February. The evident decline in U.S manufacturing is seemingly beginning to weigh on the labour market as the number of people out of work and claiming benefits rose by 44,000 last week, which represent the biggest weekly increase since September 2005. As a result, the Dollar came under increased pressure and that trend may continue this afternoon as the January producer price index may show a moderate drop in the inflation gauge with prices falling back to an annual rate of 1.7%.

Data Released 16th February

EU 10:00 Trade Balance (December)

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

U.S 13:30 Housing Starts / Building Permits (January)

U.S 15:00 Michigan Sentiment (Prelim February)

written by Adam Solomon

The Pound declined heavily against the majors yesterday, dropping through the major support level at 1.4975 versus the Euro following a report on consumer prices, which showed that UK inflation slowed by more than expected in January. Following the Bank of England's decision to keep interest rates unchanged last week, it was widely anticipated that the index would fall back under 3.0% last month. However, prices fell 0.8% from December, which is the single biggest month-on-month decline in four years, and it seems increasingly obvious that the three previous quarter-point rate hikes are having the desired effect in slowing inflation. The annual inflation rate fell back towards 2.7% despite expectations of a more modest drop to 2.9% and the Pound came under increased pressure as the report will only fuel speculation that UK interest rates may of peaked at 5.25%. There is a host of significant economic data released in the UK this morning with the focus falling on the Bank of England quarterly inflation report, which is expected to mirror the consumer price index yesterday in suggesting that UK inflation may of peaked and will gradually fall back towards the 2.0% target this year. Elsewhere, the Pound may find some support as a separate report may show that UK jobless claims fell for a fourth consecutive month in January following the fastest economic growth in over two years.

The recent positive sentiment surrounding the Euro continued yesterday as the single currency made further gains against both Sterling and the Dollar following yet another band of positive economic data. The ZEW Centre for European Economic Research published their monthly survey on German investor confidence, which rose for a third month in February following faster economic growth and evidence that the sales-tax increase wouldn't have a negative effect on consumer spending. Elsewhere, the Euro found further support as the Flash estimate for European gross domestic product showed that economic growth accelerated faster than anticipated in the fourth quarter of last year. In 2006, the European economy grew at the fastest pace in six years following a significant expansion in Germany and recent reports have suggested that the economy will continue to sustain that momentum as the year progresses.

The Dollar relinquished much of the early gains made against the pound yesterday and also declined versus the Euro following a report from the Commerce Department showed that the U.S trade deficit widened for a record fifth year in 2006. The gap between imports and exports rose by 6.5% last year following a severe increase in imported oil, which overwhelmed U.S exports. The shortfall in trade rose to $61.2 Billion in December despite expectations of a more modest rise to $59.7 Billion and it seems that the deficit in goods and services will continue to weigh on economic growth this year. As a result, the Dollar declined against the majors but may be given a reprieve this afternoon as growth in retail sales continues to propel economic growth with the latest survey expected to increase by 0.4% in January.

Data Released 14th February

UK 09:30 Average Earnings (3 months to December)

UK 09:30 Unemployment (January)

UK 10:30 BoE Quarterly Inflation Report

U.S 13:30 Retail Sales (January)

U.S 15:00 Business Inventories (December)

written by Adam Solomon

By the close of trading last night, the Pound had made modest gains against both the Euro and the Dollar following a report on UK factory-gate prices, which unexpectedly rose by the most in six months in January. The producer price index, which provides a gauge of UK inflation, saw output prices increase 0.3% last month, while many investors had predicted a more modest 0.1% rise. The Pound has declined heavily against the majors over the past week following the decision to keep interest rates on hold at 5.25% and that in turn led to premature speculation that rates may of peaked this year. However, the report yesterday will only increase the chances of a further quarter-point rise over the coming months. There is some hugely influential data released in the UK this morning with the release of the consumer price index, which is the preferred measure of inflation and it is widely expected to show that prices fell slightly below 3.0% last month. The monetary policy committee would of had access to the index prior to the rate announcement last week and with rates staying unchanged this month it is likely that inflation moderated to 2.9% in January from 3.0% in December. The Pound may come under increased pressure if the index fell below expectations as it will look increasingly likely that the previous rate increases are slowing economic growth and moderating inflation.

The Dollar remained relatively strong yesterday as the market eagerly awaits the semi-annual monetary policy report from the chairman of the Federal Reserve, Ben Bernanke, who is scheduled to testify to the Senate later this week. However, the U.S currency may come under some pressure this afternoon following the report on the December trade balance. It is widely anticipated that the deficit in goods and services rose from a 16-month low in December, which reflects the increase in energy costs over the same period.

The Euro fell modestly against the Pound yesterday and declined a further 0.3% versus the Dollar following a distinct lack of economic reports in the Euro-zone. The single currency has been making robust gains over the past week as the market factors in a 100% chance of a further rise in European interest rates next month following the typically hawkish rhetoric from the ECB president, Jean-Claude Trichet. The Euro has received a moderate boost this morning as the preliminary estimate for German economic growth showed an unexpected rise in the fourth quarter following a sustained increase in exports and consumer spending. There is a host of significant economic data released in the Euro-zone later this morning with the focus falling on German investor confidence. The ZEW index into investor expectations may rise for a third consecutive month in February as recent reports have showed that growth in consumer spending will be able to supplement the VAT increase administered earlier this year. Elsewhere, the flash estimate for GDP, the value of all good and services, is expected to show that European economic growth accelerated to 3.0% in the fourth quarter from 2.7% in the third.

Data Released 13th February

UK 09:30 Consumer Price Index (January)

- RPI

EU 10:00 Flash GDP (Q4)

EU 10:00 Industrial Production (December)

GER 10:00 ZEW Expectations Balance (February)

U.S 13:30 Trade Balance (December)

written by Adam Solomon

Following on from last week, the Pound declined heavily against majors following the decision from the Bank of England to leave UK interest rates on hold at 5.25% as policy makers wait to assess the impact of three previous rate hikes since August. Although the outcome was widely anticipated, the Pound came under increased pressure as speculation mounts that UK interest rates may of peaked following the partial slowdown in housing and the services industry. The Pound fell back towards the major resistance level at 1.4975 against the Euro and also made substantial losses versus the Dollar as a separate report on Friday showed that the UK trade deficit unexpectedly widened in December. The deficit in goods and services rose to £7.1 Billion, which is the highest increase in seven months as a stronger pound weighed on UK exports. The focus this week in terms of economic data will fall heavily on the release of the January consumer price index, which is expected to show moderating inflationary pressures following the Bank's decision to leave rates on hold this month. Sterling may receive a timely boost this morning as a gauge of UK house prices are expected to show a moderate increase in December while elsewhere, the producer price index may show that output prices increased 0.2% in January.

There is a plethora of U.S economic data released in the States this week and the focus will fall on the chairman of the Federal Reserve, Ben Bernanke, as he delivers the semi-annual testimony to the Senate, which is expected to outline that inflation is moderating while the housing market is showing signs of stabilising. Elsewhere, the Dollar may make further gains against the Pound as U.S retail data is expected to show a further pick-up in sales for January while growth in the U.S industrial sector is may show a modest pick-up in output over the same period. However, the U.S trade balance, released tomorrow, is widely anticipated to show that the deficit in goods and services widened to $59.5 Billion in December with export prices rising 0.3%.

The Euro has made significant gains against both the Dollar and the Pound over the past week as the chairman of the European Central Bank gave a very strong indication that interest rates would rise a further quarter-point next month. Although policy makers left rates on hold this month, the accompanying press conference saw the chairman, Jean-Claude Trichet, announce that "strong vigilance" would be necessary to ensure price stability, which is the exact same terminology used in each month prior to a rate increase. As a result, the Euro rallied furiously and the single currency may remain relatively strong this week as the Flash estimate for European gross domestic product is expected to show robust growth in the revised figures for the fourth quarter, supporting the Central Bank's tightening campaign.

Data Released 12th February

UK 09:30 Producer Price Index (January)

UK 09:30 DCLG House Prices (December)

U.S 19:00 Treasury Budget (January)

written by Adam Solomon

The Pound came under sustained pressure against the majors yesterday, dropping 0.6% versus the Dollar and more significantly a further 0.7% against the Euro as we fall back towards the major support level just above 1.4975. Sterling declined heavily following the Bank of England interest rate announcement where the monetary policy committee elected to hold interest rates at 5.25% following a surprise increase in January. Although the decision to keep rates unchanged was widely anticipated, there were suggestions that policy makers would lift rates back-to-back in February to stem the threat of rising inflation. However, growth in the UK service sector, which accounts for the largest proportion of economic growth, slowed in January while recent reports have also provided evidence of a moderate slowdown in housing. Therefore, the nine-strong committee will wait to see the effects of previous rate increases before another probable move by April. The Pound came under increased pressure as speculation builds that UK interest rates may of peaked at 5.25% and therefore, the CPI figures released next week will take on added significance in order to ascertain if inflation has scaled back through 3.0%. The Pound may be given a reprieve this morning following the release of the UK trade balance, which is expected to show that deficit in goods and services narrowed from £7.2 Billion in December.

The Dollar managed to make modest gains against the Euro yesterday and firmed up a further 0.6% versus the Pound after a report on initial jobless claims gave further indication of healthy growth in the U.S labour market. The number of Americans filing for first time claims rose just 3,000 over the past week to an annual rate of 311,000 with the unemployment rate staying near a six-month low. Elsewhere, a separate report from the Commerce department showed that Wholesale Inventories rose 0.5% in December after a 1.3% increase the previous month.

The Euro rallied strongly against the Pound yesterday as the European Central Bank also kept interest rates steady at 3.5% but gave a strong hint that rates are set to rise by a further quarter-point in March. It was widely anticipated that policy makers would keep rates unchanged this month after a particularly dovish rhetoric from the chairman, Jean-Claude Trichet, in last month's meeting. However, in the accompanying press conference yesterday, Trichet used his trigger words to the market to announce a rate increase next month saying, "strong vigilance remains of the essence to ensure that risks to price stability do not materialise." In each of the last six rate increases since late 2005, the chairman has utilised the exact same terminology to give notice that the Central Bank intend to lift rates the following month and as a result, the Euro made rapid gains against Sterling as we enter a downward trend.

Data Released 9th February

UK 09:30 Global Trade Balance (December)

- Ex EU Trade

written by Adam Solomon

The Pound came under pressure against the majors yesterday, falling modestly versus the Dollar and by the close of trading last night had fallen 0.4% against the Euro following a worse-than-expected report on UK factory production. Industrial output slipped 0.1% in December after gaining a revised 0.4% the previous month but the gauge of manufacturing increased for a second month in succession. The significance of the report shows that growth in manufacturing will continue despite the dramatic appreciation of the Pound since August combined with an aggressive tightening of UK interest rates over the same period. The focus today will fall heavily on the Bank of England interest rate announcement at midday and although the consensus forecast suggests a no change in policy this month, we can't dispel the possibility of a further quarter point increase with inflation still well above target. The Monetary Policy Committee was split 5-4 in favour of a rise in rates in January and it is widely anticipated that policy makers will wait to assess the impact of previous rate increases before rising again in March.

The Euro managed to continue making gains yesterday, firming an additional 0.3% against the Dollar and also rose versus the Pound despite a surprisingly negative report on the German industrial sector. Industrial production unexpectedly slipped to a seasonally adjusted 0.5% in December ahead of the sales-tax increase, which threatens to weigh heavily on consumer sentiment. However, the Euro managed to make further gains against both the Euro and the Dollar as we build up to the ECB interest rate announcement this afternoon. Following a particularly dovish rhetoric from the chairman, Jean-Claude Trichet, in last month's press conference we don't expect the Central Bank to raise rates this month. However, the tone and language used in the accompanying statement will be heavily scrutinized for clues on future policy and if Trichet uses his trigger words, "strong vigilance" in order to ensure price stability, it will look very likely that rates will rise in March and that should provide some support to the Euro.

The Dollar managed to claw back modest gains against Sterling yesterday following a report on U.S productivity, which unexpectedly accelerated at the fastest rate in nearly a year in the preliminary estimate for the fourth quarter. However, a separate gauge of the report showed that unit labour costs rose at a much slower pace than anticipated, which provides further speculation that a slowdown in wage growth will continue to tame inflation. The rebound in economic growth combined with seemingly moderating inflationary pressures makes it easier for the chairman of the Federal Reserve, Ben Bernanke, to keep U.S interest rates unchanged over the coming months. However, yesterday a member of the Federal Reserve Bank of Philadelphia, Charles Plosser, indicated that the recent pick-up in economic growth increases the risk that inflation won't moderate and therefore, U.S interest rates will have to increase from the current 5.25%.

Data Released 8th February

UK 12:00 Bank of England Interest Rate Announcement

EU 12:45 European Central Bank Interest Rates Announcement

EU 13:30 ECB Press Conference

GER 11:00 Industrial Orders (December)

U.S 13:30 Initial Jobless Claims (w/e 2nd February)

U.S 15:00 Wholesale Inventories (December)

written by Adam Solomon

Sterling advanced against the majors, firming an additional 0.5% versus the U.S Dollar and by the close of trading last night increased 0.2% against the Euro following the report from the British Retail Consortium, which showed that strong consumer spending continued after the Xmas period. The annual growth rate in like-for-like sales increased beyond expectations with values rising 3.1% in January and the report provides further evidence that consumers will be able to supplement higher interest rates and carry on spending. Therefore, it seems increasingly likely that the MPC will continue monetary tightening over the coming months and although we anticipate a 'no change' in policy this Thursday, there is always the outside chance the BoE will hike rates early with inflation expected to rise further over the past month. The Pound may continue to make gains against both the Euro and the Dollar this morning as a report on the UK industrial sector is expected to show a further rise in production and manufacturing output in December.

The Euro managed to remain firm against the Dollar yesterday, rising a modest 0.3% on the session despite a worse-than-expected report on European retail sales and a drop in German factory orders. Previous reports have shown that consumer spending remained relatively robust over the Xmas period as shoppers stepped up spending ahead of the introduction of the German VAT increase at the start of 2007. As a result, the Euro declined against the Pound but may receive a timely boost this morning as German industrial production is expected to rise 0.5% in December despite the surprising drop in orders over the same period.

The Dollar came under further pressure against both the Euro and the Pound yesterday following a distinct lack of economic data released in the States this week. However, the U.S currency may receive a much needed boost this afternoon as nonfarm productivity probably accelerated in the preliminary estimate for the fourth quarter with expectations of a 1.1% rise from the previous quarter. However, a separate gauge on the report may show that labour costs accelerated at a slower pace, which suggests that wage growth may have moderated and therefore reduced the threat of inflation. As a result, recent comments from the Federal Reserve over a rebound in economic growth combined with lower inflation will look increasingly likely, which will make it easier for policy makers to keep interest rates on hold.

Data Released 7th February

UK 09:30 Industrial Production (December)

- Manufacturing Output

GER 11:00 Industrial Production (December)

U.S 13:30 Productivity (Q4 Prelim)

- Unit Labour Costs

written by Adam Solomon

The Pound declined against the majors yesterday, falling 0.3% versus the Dollar and dropping modestly versus the Euro following a worse-than-expected report on the UK service sector. Growth in services, which accounts for the largest proportion of economic growth, moderated from a 10-year high in January after the BoE raised interest rates three times since August. The CIPS purchasing managers' survey came out at a reading of 59.2 after rising to 60.6 in December and the report will fuel speculation that growth in the sector may of peaked with interest rates currently running at a five-year high. Nevertheless, any Sterling losses were short-lived and overnight we have advanced against both the Euro and the Dollar following a report from the British Retail Consortium. The survey showed that UK retail sales increased at the fastest pace in six months in January, rising at an annual rate of 3.1% after gaining 2.5% in December. The report will only provide further evidence that consumers will be able to supplement higher interest rates and with inflation reaching the fastest pace in a decade, it seems increasingly likely that rates will continue to rise over the coming months.

The Dollar received an unexpected boost yesterday as growth in U.S service industries accelerated faster than anticipated in January with the headline measure reaching the highest level since May last year. The Institute of Supply and Management released their monthly index, which showed that growth in non-manufacturing companies rose to a reading of 59.0 in January with a figure above 50 indicating expansion. The U.S service sector accounts for the largest proportion of economic growth and combined with lower energy prices and higher wages it seems the U.S economy will continue to expand at a 'moderate' pace this year, predominantly fuelled by consumer spending.

The Euro found some support yesterday, firming 0.4% against the Dollar and remaining firm versus the Pound after a report showed that European service industries unexpectedly expanded in January after unemployment in the Euro-zone fell to the lowest level on record. The Purchasing Managers' Index rose to a reading of 57.9 from 57.2 in December and the report suggests that growth in the sector will continue to rebound from a slowdown at the start of the year. In addition, Services growth accelerated in Germany, Italy and France in January and a separate gauge of business expectations also jumped to a reading of 67.8 from 65.3 the previous month. Although, economic growth is expected to moderate in the second half of the year, the report yesterday will only fuel further speculation that European interest rates are set to rise in March. The Euro may make further gains against the majors this morning following a report on retail sales, which is widely expected to increase 1.0% in December while also rising to an annual rate of 2.3%, as consumers stepped up spending before the VAT increase at the start of the year.

Data Released 6th February

EU 10:00 Retail Sales

written by Adam Solomon

Following on from last week, the Dollar came under a modest amount of pressure on Friday following the release of the monthly U.S job report, which showed that the economy added 111,000 workers to payrolls in January while the unemployment rate unexpectedly rose. The jobless rate increased to 4.6% and slower growth in the U.S labour market combined with moderating wage pressures lessens the risks to higher inflation, which in turn leads to speculation that the Federal Reserve can hold rates over the coming months. There is a fundamental lack of economic data released in the States this week with the focus falling on the ISM Services report, which is expected to show a modest improvement following the surprise downside move the previous month. Therefore, the Dollar may receive a timely boost this afternoon as the index is expected to rise to a reading of 57.0 from 56.7 in December. While elsewhere, the chairman of the Federal Reserve, Ben Bernanke, is scheduled to speak at a conference this afternoon and his comments will be watched closely for any further insights into monetary policy.

The Euro declined heavily against the Pound towards the end of last week as the Flash estimate for consumer prices showed that European inflation fell under expectations in January. The index was widely expected to rise above the 2.0% target last month but with oil prices holding firm below $60 a barrel, the risks to price stability remain low as inflation came out unchanged at 1.9%. The significance of the report is that the European Central Bank are unlikely to raise interest rates this week particularly after the dovish rhetoric from the chairman, Jean-Claude Trichet, in last month's policy meeting. The Euro may come under some pressure this morning following the Purchasing Manager's Index on the European Service sector, which is expected to decline to a reading of 56.2 in January from 57.2 in December, although a figure above 50 indicates expansion.

The Pound managed to advance against the majors last week despite the apparent lack of economic data released in the UK as the focus fell on a report from the Bank of England, which showed a modest drop in mortgage approvals. However, the focus this week will inevitably fall on the Bank of England's interest rate announcement this Thursday. Although we expect the MPC to leaves on hold this month, there is the increased chance that policy makers may pull another surprise and hike rates a further quarter-point in order to bring inflation back under control. In terms of economic data, the focus this week fall on the CIPS Services report this morning with growth in the sector currently running at a 10-year high and the survey is expected to remain at an elevated level in January. Growth in Services, which accounts for the largest proportion of economic growth, would of been one of the main factors in last month's surprise rate increase and therefore, the report will be watched closely for a further insight into monetary policy.

Data Released 5th February

UK 09:30 CIPS Services Survey (January)

EU 09:00 PMI Services (January)

U.S 15:00 ISM (Non-Manufacturing) Index (January)

Every effort is made to ensure the accuracy of the information contained within this email, however TorFX cannot accept liability for damage caused by error, omission, or inaccuracies. Any opinions expressed are those of the author, and do not represent advice. Clients are wholly responsible for trading decisions.


written by Adam Solomon

The Dollar came under further pressure yesterday, falling an additional 0.4% against the Pound but managed to rise modestly versus the Euro by the close of trading last night following a mixed bag of U.S economic data. Initially, the Dollar tumbled following the release of the Institute of Supply & Management's index on U.S manufacturing, which unexpectedly contracted to a reading below 50 in January as factories cut production and reduced orders. The gauge of manufacturing activity was widely expected to increase from 51.4 in December but surprisingly fell to the lowest level since April 2003, which correlates with the unexpected drop in activity in the Chicago region over the same period. However, following the initial negative reaction, the Dollar managed to climb against the Euro and traded back below 1.9700 versus the Pound as a separate report on Pending Home Sales increased the possibility of a rebound in the housing sector. The focus today will undoubtedly fall on the release of the monthly U.S job report, which is expected to show that the economy added 150,000 jobs to payrolls in January while average hourly incomes are also expected to rise. Following the positive growth in the U.S labour market over the past year, the Dollar may come under some considerable pressure this afternoon if the job report comes out under expectations.

The Euro declined against the majors yesterday, dropping modestly versus the Dollar and falling 0.4% against the Pound as a report on European manufacturing slowed for a third consecutive month in January as exports continued to drop. The Purchasing Manager's Index dropped to a reading of 55.5, the lowest since February last year, although a figure above 50 indicates growth. The report yesterday will only add to previous evidence that economic growth will continue to slow in the Euro-zone, decelerating from the fastest pace in six years. The Euro may come under further pressure this morning following the release of Producer Price index, which is expected to show that a gauge of inflation slipped to 4.1% year-on-year in December from 4.3% the previous month.

The Pound managed to rise against the majors yesterday, consolidating the gains made in the previous session as we closed last night 0.4% higher against both the Euro and the Dollar as UK factory output unexpectedly quickened in January. The CIPS manufacturing survey rose to a reading of 52.8 in January from 52.0 the previous month and the report will only fuel further speculation of a rebound in the sector, which will surely help propel economic growth this year. In addition, the growth in manufacturing seems to be weathering the Bank of England's decision to raise UK interest rates three times since August and the Pound's 14% appreciation against the Dollar last year, which will obviously weight on UK exports.

Data Released 2nd February

EU 10:00 Producer Price Index (December)

U.S 13:30 Non-Farm Payrolls (January)
- Average Hourly Earnings / Unemployment

U.S 15:00 Michigan Sentiment (January Final)
U.S 15:00 Factory Goods Orders (December)

written by Adam Solomon

Every effort is made to ensure the accuracy of the information contained within this email, however TorFX cannot accept liability for damage caused by error, omission, or inaccuracies. Any opinions expressed are those of the author, and do not represent advice. Clients are wholly responsible for trading decisions.

There was a lot of volatility in the market yesterday as the Dollar initially advanced against Sterling to trade briefly under 1.9500 following the release of the advanced estimate for economic growth in the fourth quarter of last year. The report showed that the U.S economy grew at a faster pace than anticipated, rising to an annual rate of 3.5% in the final quarter following a significant rebound in consumer spending as fuel prices continued to tumble. In the aftermath of the report, the Dollar rose against Sterling and made modest gains versus the Euro but a separate index on U.S business activity in the mid-west unexpectedly declined. The Purchasing Manager's report on manufacturing in the Chicago region contracted for the first time since April 2003 following a sustained drop in new orders as the index plummeted to a reading of 48.8 with a figure above 50 indicating expansion. Elsewhere, the Dollar extended its losses as the Federal Reserve kept U.S interest rates at 5.25% although policy makers retained their bias towards further tightening if inflation continues to rise. The Open Market Committee voted unanimously to hold rates for the seventh consecutive month but with recent economic reports showing expansion in the labour market, strong consumer spending and a rebound in the housing sector, it seems increasingly likely that the Fed will refrain from cutting rates at least until the second half of the year.

There is a plethora of significant economic reports released in the States this afternoon with the focus falling on the personal income and expenditure report, which is expected to show further growth in wages for December and add to the current inflationary pressures. Elsewhere, the Dollar may find further support as the Institute of Supply and Management release their monthly report on U.S manufacturing, which is expected to increase to a reading of 52.0 in January from 51.4 the previous month. Following the lacklustre performance of business activity in the Chicago region, the report will take on added significance and a drop below 50 will evidently weigh on Dollar sentiment.

The Euro managed to rise significantly against the majors yesterday, firming an additional 0.4% versus the Pound and trading up through 1.3000 against the Dollar by the close of trading last night. The single currency found support as German retail sales rose above forecasts in December although the report is not representative of the current climate following the VAT increase at the start of January. Elsewhere, German unemployment fell to the lowest level in more than five years in January as strong economic growth encouraged companies to step up hiring. However, the Euro managed to consolidate the recent gains against the majors despite a separate report on European consumer prices, which showed that inflation remained below target for a fifth consecutive month. It was widely anticipated that the Flash estimate consumer price index would rise to 2.1% in January but the official figures showed that the inflation rate stayed unchanged at 1.9% as confidence offset the effect of the German tax increase.

Data Released 1st February

UK 09:30 CIPS Manufacturing Survey (January)

EU 09:00 Manufacturing PMI (January)

U.S 13:30 Weekly Jobless Claims (w/e 27th January)

U.S 13:30 Personal Income / Expenditure (December)
- Core PCE Deflator

U.S 15:00 Manufacturing ISM (January)

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

written by Adam Solomon