Daily Insight

The Pound has come under further pressure this week following a string of negative economic reports, which threatens to undermine the prospect of any further monetary tightening as the UK current account deficit widened to a 16-year high while economic growth was revised down in the last quarter. However, the Pound has remained largely unchanged in spite of the recent reports and yesterday received an unlikely boost as UK mortgage approvals came in higher than anticipated for February. According to a report from the Bank of England, UK mortgage lenders approved 119,000 home loans last month, which was significantly more than expected and provided an indication that demand in the property market is withstanding higher interest rates. There have been signs that growth in the housing market is slowing but a report from Nationwide yesterday showed that prices had risen for the fourteenth consecutive month in March and that may prompt the MPC to continue lifting interest rates this year. Elsewhere, Sterling managed to gain 0.1% against the Dollar after a survey from the Confederation of British Industry showed that growth in the UK retail sector was at its strongest level since December 2004. There is a distinct lack of economic data released in the UK this morning with the focus falling on the Gfk gauge of consumer confidence, which is expected to remain unchanged at a reading of -8.0 in March.

The Euro managed to make gains against the majors over the past trading session, firming 0.2% versus the Dollar and a further 0.1% against the Pound after reports in Germany showed a bigger-than-expected drop in unemployment. The jobless rate fell to 6.9% in February, which represents the lowest reading in over five years and provides a further indication that a strong labour market will be able to support economic expansion in the wake of the sales tax increase at the start of the year. The Euro may continue to make gains this morning amid a host of economic data released in the Euro-zone. Firstly, the flash estimate of European consumer prices is expected to show that inflation edged higher towards 1.9% in March, pushing towards the Central Bank's 2.0% ceiling and any upward revisions will surely spark speculation of further monetary tightening. Elsewhere, the EC sentiment index will provide an indication of consumer and industrial confidence, which is expected to remain at an elevated level in March following the sustained fall in unemployment. Following the dramatic drop in German jobless claims this year, the European unemployment rate is expected to make new yearly lows in the figures released this morning with forecasts suggesting a fall towards 7.3%.

The Dollar failed to rebound against both the Euro and the Pound yesterday despite an upward revision in U.S economic growth in the fourth quarter. The final estimate of gross domestic product showed that the economy grew at an annual rate of 2.5% in the fourth quarter following the worst slump in housing construction in 17-years. The final revision of GDP compares with a 2.2% rate reported last month while a measure of inflation, keenly watched by the Federal Reserve, rose less than forecast. Recent reports have suggested that the slump in housing has yet to peak as the increase in subprime loan defaults and foreclosures threatens to deepen the slowdown and prevent the economy from expanding. The Dollar may receive a timely boost this afternoon following the release of the personal income and expenditure report, which represents the Federal Reserve's preferred measure of U.S inflation. In a testimony to Congress this week, the chairman, Ben Bernanke, has reiterated that upside risks to inflation remain a concern to policy makers and the report this afternoon is expected to show that the PCE Deflator increased 0.2% in February. Elsewhere, the Purchasing Manager's index into the current state of manufacturing in the Chicago region is expected to increase to a reading of 49.6 from 47.9 in February. While the Dollar may also rally following the release of the final estimate of the consumer sentiment in the Michigan area, which is expected to increase to a reading of 89.0 from 88.8 reported earlier this month.

Data Released 30th March

UK 10:00 Gfk Consumer Confidence (March)

EU 10:00 Flash HICP (March)

EU 10:00 EC Business Climate Index (March)

EU 10:00 EC Sentiment Index (March)

- Consumer / Industrial Confidence

EU 10:00 Unemployment Rate (February)

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

PCE Deflator

U.S 14:45 Chicago PMI (March)

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

U.S 15:00 Construction Spending (February)

written by Adam Solomon

The Pound remained largely unchanged against both the Euro and the Dollar yesterday despite a host of negative economic reports, which gave way to speculation that growth in the property market has peaked as prices fell 0.4% in March. Earlier in the session, the Pound came under increased pressure against the majors and dropped briefly below 1.9600 versus the U.S Dollar as the final estimate of UK GDP showed that economic growth was unexpectedly revised down in the fourth quarter of last year. Gross domestic product rose 0.7%, which was unchanged from the previous quarter, while the annual pace of economic expansion remained above trend growth at 3.0%. Recent reports have suggested that growth in the service sector has stagnated from previous months and that has led to further speculation that the Bank of England will continue to assess the impact of three previous rate increases before a likely move in May. Elsewhere, the Pound managed to remain relatively strong despite a separate report, which showed that the UK current account deficit widened to a record level in the fourth quarter of 2006. There is some significant economic data released in the UK this morning with the focus falling on mortgage approvals for the month of February and a separate report from the Confederation of British Industry on the distributive trades balance. Following a downward swing in house prices over the past month, it is widely anticipated that mortgage approvals fell to 118,000 last month and any revisions under that figure may weigh on Sterling sentiment.

The Euro remained relatively unchanged against the majors yesterday despite yet another round of hawkish rhetoric from a number of ECB policy makers including the chairman, Jean-Claude Trichet, who emphasised that monetary growth is vigorous while interest rates are still at an accommodative level. That sentiment was also expressed by a number of governing-council members and it seems almost certain that the Central Bank will continue raising rates above the current 3.75% in the near short-term. There was a mixed bag of economic data released yesterday as the focus fell on Euro-zone money supply with growth in the M3 remaining particularly strong and emphasised that inflationary pressures continue to mount. The Euro has already made modest gains this morning as the Purchasing Manager's index on European retail sales rose for the first time in three months in March. Last month the European Commission raised its 2007 growth forecast for the economy to 2.4% from 2.1% and highlighted that retail growth would be a major factor in expansion this year as German consumer confidence rebounds after the imposed sales tax increase. Elsewhere, a separate report this morning has confirmed that unemployment in Germany dropped to lowest level in over five years last month.

The Dollar managed to hold firm yesterday despite rumours of a military incident involving Iran and a U.S war ship, which rattled investor confidence and sent oil hurtling towards $65 a barrel. Although it has since appeared that the alleged incident did not take the place, it emphasised the nervousness in the market and the possible implications of instability in the Middle East as oil rose for a seventh day in succession and sparked concerns of a U.S recession. The Dollar also managed to hold steady despite a report on U.S durable goods orders, which rose less than forecast in February, rising just 2.5% with orders excluding transportation declining 0.1%. However, the data was largely ignored by the market as the focus seemed to fall on a statement from the chairman of the Federal Reserve, Ben Bernanke, who said that monetary policy is still orientated towards controlling inflation despite a shift in tone from the Fed in the last FOMC announcement. His comments reflected no reference towards a cut in U.S interest rates as he stated that the Central Bank's decision to move to a more neutral stance simply gave policy makers more room to manoeuvre. The Dollar may come under some pressure this afternoon as report on U.S economic growth may show that the economy expanded at an annual pace of 2.2% in the final quarter of 2006 as the slump in housing and business spending shows no signs of ending.

Data Released 29th March

UK 09:30 Mortgage Approvals (February)

UK 11:00 CBI Distributive Trades Balance (March)

U.S 13:30 GDP / Deflator (Q4 Final)

U.S 13:30 Initial Jobless Claims (w/e 24th March)

written by Adam Solomon

The Dollar continued to slide against the Euro yesterday but by the close of trading last night was 0.2% higher versus the Pound despite a weaker-than-expected report on U.S consumer confidence. Following a particularly soft report on retail sales and consumer sentiment earlier in the month, the Conference Board's index into consumer confidence was widely expected to show a reading below the five-year high at 112.5 in March. The sustained slump in the U.S housing market combined with a sharp rebound in fuel prices over the past month has led to increased pessimism among the consumer that will surely lead to an imminent rate cut by the Federal Reserve. The index fell more than anticipated yesterday to a reading of 107.2 with the only positive note coming from the labour market component of the report, which rose to the highest level since August 2001. However, the overall theme of the data was negative for the U.S economy and as a result, the Dollar continues to slide against the Euro. In terms of economic reports, the focus today will fall on durable goods orders for the month of February and initial forecasts suggests that orders probably rose after falling by the most in six years the previous month.

The Euro made widespread gains against the majors yesterday, rising 0.2% versus the Dollar and rebounded 0.3% against the Pound following a surprisingly positive report on German business confidence. The Ifo business climate index rose to a reading of 107.7 in March and the report will provide a further indication that Europe's largest economy will be able to sustain growth in the wake of the value-added tax increase and can supplement the economic slowdown in the States. German economic growth accelerated to the fastest pace in six years in 2006 and it seems the economy will continue to expand as companies increase hiring and investment. The Euro rose modestly against both the Pound and the Dollar in the aftermath of the report as speculation continues to rise that the ECB will need to raise interest rates beyond 3.75%. There is some significant economic data released in the Euro-zone this morning with the M3 three month moving average expected to show that money supply remained largely unchanged in February at 9.7%. Elsewhere, German consumer confidence rose for the first time in five months in February providing yet further evidence that the economy has overcome the increase in sales tax.

The Pound came under increased pressure against the majors yesterday following a statement from Mervyn King, the governor of the Bank of England, who told a UK Treasury select committee that the UK housing market was beginning to slow. The statement also pointed to upside risks to inflation in the short-term but the implications for economic growth, should confidence be hit by slowing house prices, has seemingly weakened Sterling. In addition, a report earlier today has reiterated those concerns as UK house-price growth slowed by 0.4% in March, which provides an indication that higher borrowing costs are finally beginning to slow the property market. According to the Nationwide building society, prices rose 2.1% in the first quarter of 2007, the slowest pace in seven months with the average cost of a home falling to £177,083. Elsewhere, the Pound may struggle to make further gains against the majors this morning as the final estimate of UK gross domestic product in the fourth quarter is expected to confirm economic growth above trend at 3.0%.

Data Released 28th March

UK 09:30 GDP (Final Q4)

UK 09:30 Current Account (Q4)

EU 09:00 M3 / 3 month moving Average (February)

U.S 13:30 Durable Goods Orders (February)

written by Adam Solomon

Following on from last week, the Pound has continued to make robust gains against the Euro, rising to the highest level in a month versus the single currency following a band of positive economic reports in the UK. A gauge of retail price inflation, which provides the best indication of consumer price expectations, rose to a 15-year high at an annual rate of 4.6% in February and provides further evidence that the Bank of England will need to continue raising interest rates in either April or May. Elsewhere, a separate report from the Commerce department showed a sharp rebound in retail sales over the past month and the report will only fuel further speculation that consumer spending will be able to supplement three interest rate rises since August and continue to support economic growth. The Pound may remain strong against the major currencies this week amid yet another band of economic data and the focus will fall on the final estimate for UK gross domestic product in the fourth quarter. The report is expected to confirm that growth stayed above trend at a rate of 3.0% year-on-year in the final three months of 2006, showing that the UK economy expanded at the fastest pace since 2004. However, a report from the Bank of England is expected to show a marginal drop in UK mortgage approvals, which may rekindle speculation that the prospect of higher interest rates are beginning to weigh on the property market.

The Euro made rapid gains against the Dollar last week but fell to a six-week low versus the Pound following a particularly sparse week in terms of European economic reports. However, that trend is set to be dramatically reversed as the focus in terms of data will fall on the EC sentiment indices later this week, which are expected to show that consumer and business confidence has steadily improved this year. In addition, business sentiment in Europe's largest economy is forecast to remain at robust levels with the German Ifo index expected to decline modestly to a reading of 106.5 in March. European consumer confidence may have risen to the highest level in six years this month as unemployment in Germany dropped to lowest level since 2001 while the overall jobless rate in the 13-nations sharing the Euro is expected to fall 7.2% in February. European economic growth has accelerated to a degree that may prompt the ECB to continue raising interest rates beyond the current 3.75% as consumer sentiment combined with lower unemployment helps spur growth. The Euro may also receive a boost this week as the initial estimate for Euro-zone inflation is expected to show a moderate rise to 1.9% in March, holding below the Central Bank's 2.0% ceiling for yet another month. However, persistent inflationary concerns are expressed in money supply growth into the Euro-zone, which probably held at a 17-year high of 9.8% in February.

By the close of trading on Friday last week, the Dollar had managed to claw back some gains against the majors after dropping to the lowest level versus the Pound since early February as the Federal Reserve indicated that they are moving closer towards a neutral stance. However, the U.S currency found some support as a report on the housing market showed that sales of existing homes unexpectedly surged by the most in three years last month. The rebound in sales indicates that the dramatic and lasting slump in the U.S property market has finally peaked and therefore the housing data this afternoon will take on added significance. New home sales is expected to rise from the slowest pace in nearly four years in February with sales increasing 5.7% to rebound from the slowest since February 2003. The Dollar may find further support this week as the personal income and expenditure report includes details of the Core PCE deflator, which is the Fed's preferred measure of inflation and is expected to rise 0.2% from 0.3% in January.

Data Released 26th March

U.S 15:00 New Home Sales (February)

written by Adam Solomon

The recent positive sentiment surrounding the Pound continued yesterday as strong growth in the retail sector pushed the UK currency to a six-week high against the Dollar while also gaining 0.2% versus the Euro by the close of trading last night. Following the Bank of England's decision to lift interest rates on three separate occasions since August, it was widely anticipated that consumer spending, which accounts for a large proportion of economic growth, would continue to struggle over the coming months. UK retail sales declined 1.5% in January, which suggested that higher interest rates were weighing heavily on sentiment but the figures for February surged 1.4% and confirmed that the decline of the previous month was largely the result of seasonal effects. Therefore, the consumer sector is still looking relatively healthy and following the report yesterday it remains clear that the Bank of England will raise UK interest rates at least once more of the coming months to quash any lingering concerns about the upside risks to inflation. As a result, the Pound is set for its first weekly gain in a month against the Euro as reports showed that consumer price inflation unexpectedly accelerated, holding above the 2.0% target in February while the rebound in retail sales may prompt the MPC to raise rates early in April.

The Euro fell further against the Pound yesterday but achieved a fresh two-year high versus the Dollar before closing just 0.2% higher against the U.S currency amid a distinct lack of European economic data. Industrial Orders in the Euro-zone came in largely as expected in January and showed that growth in factory production continued to expand after the fastest economic growth in over six years. A number of key ECB speakers have been scheduled over the course of the week including the chairman, Jean-Claude Trichet, who failed to provide any further insights into the outlook for future monetary policy as he testified to the EU Parliament on Wednesday. In terms of economic data, the Euro may struggle to rebound against the Pound as a report this morning may show that the European current account balance remained unchanged at €2.3 billion in January.

The Dollar managed to stage a modest rebound against the majors last night, recovering from a fresh two-year low versus the Euro as the Federal Reserve kept interest rates on hold for a six month and softened its tightening bias in the accompanying statement. Therefore, it seems evermore likely that the Fed will begin cutting interest rates in the second half of the year as U.S economic growth continues to slow while inflation is expected to moderate. In terms of economic data, the Dollar came under further pressure yesterday as a closely watched gauge of the future direction of the U.S economy fell by the most in a year in February. Following a severe dip in consumer sentiment, an index of leading economic indicators fell 0.5%, which was higher than expected and supports the view of slow to moderate growth this year. In addition, there have been signs of rising unemployment as weekly jobless claims averaged 335,000 in February while non-farm payrolls slumped to just 97,000 compared with a monthly average of 189,000 in 2006. The Dollar may decline further this afternoon as report on the U.S housing market may show that the sales of existing homes slowed in February, sparking fresh concerns that the slump in housing has yet to peak.

Data Released 23rd March

EU 10:00 Current Account Balance (January)

U.S 14:00 Existing Home Sales (February)

written by Adam Solomon

Initially, the Pound declined 0.2% against the Euro yesterday and also dropped modestly versus the U.S Dollar following the release of the minutes from the Bank of England's last policy meeting, which all but diminished the prospect of a further rate rise in the near-term. The monetary policy committee voted 8-1 in favour of keeping interest rates on hold at 5.25% with David Blanchflower unexpectedly supporting a cut. Despite recent evidence to suggest that retail price inflation has accelerated to a 15-year high in February, Blanchflower argued in the statement yesterday that there is spare capacity in the labour market to reduce interest rates to 5.0%. The Pound came under renewed pressure as the report was expected to show that the dissenters favoured a rise in rates as appose to a cut. However, higher wage demands combined with the sustained growth in property prices means that the Central Bank are still likely to lift interest rates in the medium term with the next likely move in May or June. Elsewhere, a separate report yesterday provided some support to Sterling as UK manufacturing orders and factory price expectations rose to the highest level in 12 years in March. The report from the Confederation of British Industry showed that new orders climbed to the highest reading since May 1995 and the index will support the BoE's view that growth in manufacturing can support economic expansion this year.

The Euro failed to take advantage of any Sterling weakness yesterday but managed to advance 0.4% versus the Dollar despite a fundamental lack of economic data released in the Euro-zone. However, the chairman of the European Central Bank, Jean-Claude Trichet, testified to the EU Parliament yesterday but failed to give any further insights into future monetary policy and only reiterated the cautious tone of his last statement. Following a seventh interest rise in little over a year this month, Trichet reiterated that the Central Bank will continue to monitor all risks to price stability but didn't give a clear insight as to when policy makers may lift rates again. The Euro has remained largely unchanged versus the majors this morning as a report showed that industrial orders came in as expected in January.

The Dollar has fallen to lowest level against the Euro since March 2005 over the past trading session and has also dropped to a six-week low versus the Pound as the Federal Reserve kept U.S interest rates on hold at 5.25%. It was widely anticipated that policy makers would leave rates unchanged but the accompanying statement showed that the Central Bank has removed a reference to additional firming in monetary policy. The shift in tone and language of the statement obviously weighed heavily on Dollar sentiment as the Fed dropped its tightening bias for the first time and gave an indication that policy makers are less optimistic on the outlook for the U.S economy. With severe slumps in housing and manufacturing weighing on economic growth, the Fed have seemingly given themselves a platform to begin cutting U.S interest rates in the second half of the year. In terms of economic data, the Dollar may continue to decline as the weekly jobless claims are expected to rise from 318,000 in the week ending 17th March.

Data Released 22nd March

UK 09:30 Retail Sales (February)

EU 10:00 Industrial Orders (January)

U.S 12:30 Initial Jobless Claims (w/e 17th March)

U.S 14:00 Leading Indicators (February)

written by Adam Solomon

The Pound advanced yesterday and made significant gains against the majors, firming 1.0% versus the Dollar and a further 0.9% against the Euro as UK inflation unexpectedly accelerated in February to the second fastest pace in over 10-years. Consumer prices rose slightly above expectations at 2.8% year-on-year last month while retail price inflation accelerated to a 15-year high at 4.6% and the data yesterday will only reinforce the likelihood of a further rise in UK interest rates either in April or May. Higher wage demands combined with sustained growth in the UK property market may force the MPC to raise rates early in April by a further 25 basis points to peak at 5.50%. The minutes from the Bank of England's last policy meeting will take centre stage this morning after the 9-strong committee elected to hold UK interest rates in March and the report this morning will provide an insight into future monetary policy. It is widely anticipated that the MPC voted 7-2 in favour of keeping rates on hold with the two dissenters recommending a further quarter-point rise. However, if any more members elected to shift their stance towards a further rise in interest rates, we can expect the Pound to make widespread gains against both the Euro and the Dollar. In addition, the tone and language used in the accompanying statement will be heavily scrutinized as the market looks for direction on policy and the chances of a further hike next month.

The Pound may also receive a boost as a report from the Confederation of British Industry is expected to show that industrial orders remained at the highest level in a decade for the month of March, which will support the view that growth in manufacturing will be able to support economic growth. Elsewhere, the Chancellor Gordon Brown will deliver what will probably be his final budget at midday today and may borrow a further £6 billion more than he forecast just four months ago in order to fund plans for health and education spending. Therefore, the government's deficit may total £101 billion in the three fiscal years through to April 2009 and we can expect some volatility in the market during the announcement.

The Dollar continued to decline against the Pound yesterday and remained flat versus the Euro despite a positive economic report, which seemed to suggest that the slump in housing may have peaked. Builders started work on more new homes in the States that previously anticipated with housing starts rising to an annual rate of 1.525 million in February, which was an increase of 9% from January. The report yesterday will ease concerns that a worsening construction slump would weigh on economic growth as housing starts rebound from the slowest pace since 1997. However, the focus today will fall on the FOMC rate announcement this evening where the Federal Reserve are expected to keep interest rates on hold at 5.25%. The tone of the accompanying statement will also be closely watched as the Open Market Committee are expected to retain a tightening bias and that may provide a boost to the ailing U.S dollar.

Data Released 21st March

UK 09:30 BoE MPC Minutes: March 7th - 8th Meeting

UK 11:00 CBI Industrial Trends Survey (March)

UK 12:30 Budget Report

U.S 18:15 FOMC Rate Announcement

written by Adam Solomon

The Pound managed to make considerable gains against the majors yesterday, firming 0.2% versus the Euro and a further 0.3% against the Dollar as we closed above trend resistance at 1.9435 last night and from a technical perspective, it looks increasingly likely that we will continue to climb higher. There was a distinct lack of UK economic data released yesterday but a survey from the property website Rightmove plc showed that UK house prices grew 1.5% in March, pushing the annual rate to 12.2% from this stage in 2006. It seems that the Bank of England's decision to lift interest rates three times since last August has seemingly failed to cool the property market with house prices still advancing. The focus today in terms of economic data will undoubtedly fall on the UK consumer price index, which is expected to show that inflation exceeded the Central Bank's 2.0% target for a 10th consecutive month in February. Consumer prices may stay relatively unchanged at 2.7% year-on-year last month but the retail price index may prove more influential in shaping consumer price expectations. RPI inflation has doubled in the past year, reaching the highest level since 1992 and if the figures today show that prices rose beyond 4.2% last month, we can expect the Pound to make further gains against the majors.

The Euro remained relatively unchanged against the Dollar by the close of trading last night but declined 0.2% versus the Pound following a fundamental lack of data released in the Euro-zone. That trend may stay fairly consistent throughout the week as the main focus will fall on Jean-Claude Trichet's testimony to the EU Parliament tomorrow where the chairman of the European Central Bank may provide some clues to future outlook for monetary policy. The Euro has managed to stay firm this morning following the release of German inflationary data where producer prices were expected to rise 0.3% in February although the annual rate of inflation may have dropped to 2.8%. Elsewhere, the Euro may stay fairly unchanged against the majors as a separate report is expected to show that the European trade balance was reduced to €1.8 billion in January from €2.5 billion the previous month.

The Dollar continued to decline against the Pound yesterday and the trend seems to suggest that the U.S currency will continue to decline ahead of the FOMC interest rate announcement tomorrow. It is widely anticipated that the Federal Reserve will leave rates unchanged at 5.25% but the post-decision statement will be heavily scrutinized for any change in tone as growth continues to lose momentum. However, Fed officials may maintain a tightening bias in the statement tomorrow as inflation remain above the Fed's target. Elsewhere, the Dollar may be given a reprieve this afternoon as evidence begins to build that the slump in the U.S housing market is beginning to peak. Housing starts are expected to show that builders started work on new homes at the second-slowest pace in nine years last month, rising to an annual rate of 1.45 million.

Data Released 20th March

UK 09:30 PSNCR (February)

UK 09:30 Consumer Price Index (February)

EU 10:00 Trade Balance (January)

U.S 12:30 Housing Starts (February)

written by Adam Solomon

Following on from last week, the Dollar continued to decline against the majors, dropping to a three month low versus the Euro as recent reports provide fresh concerns of slowing U.S economic growth. On Friday, the University of Michigan's preliminary index of sentiment showed that U.S consumer confidence fell this month following an increase in fuel prices while U.S stocks fell by the most in four years. The sentiment index fell to a reading of 88.8 in March, which represents the lowest figure since September last year and it seems that consumer spending, which accounts for a large proportion of economic growth, will continue to slow in pace this year. Elsewhere, a separate report showed that higher fuel prices have managed to push U.S inflation higher over the last month, which will keep the Federal Reserve on red alert ahead of the monthly FOMC rate announcement on Wednesday. Consumer prices rose 0.4% in February following a more modest 0.2% increase the previous month and persistent inflationary pressures means the chairman of the Fed, Ben Bernanke, will find it difficult to signal an interest rate cut when policy makers meet this week. Therefore, it is widely anticipated that U.S interest rates will remain on hold in March but it is beginning to look increasingly likely that the Fed will cut rates up to three times this year as the slump in the housing sector continues to threaten the pace of economic growth.

The positive sentiment surrounding the Euro continued last week as the single currency made widespread gains against both the Pound and the Dollar despite a particularly sparse week in terms of economic reports. The Euro has risen to the highest level against the Pound since August last year over the past week and from a technical perspective, it now looks very likely that we will continue to fall through the support level at 1.4600. There is a distinct lack of economic data released in the Euro-zone this week and the focus will fall on Jean-Claude Trichet's testimony to the EU Parliament on Wednesday where the chairman of the ECB may give some insights into the future outlook for monetary policy. Elsewhere, the German consumer price index may provide an indication of inflationary pressures in Europe's largest economy, which may prompt the ECB to raise rates for the eighth time in this tightening cycle as early as May.

The Pound has made significant gains against the Dollar over the past week as the technical outlook seems to suggest we may head higher still ahead of a key week in terms of economic events. However, the Pound has come under renewed pressure versus the Euro as Sterling proves to be more sensitive to the unwinding of UK carry trades with Japan than it's European counterpart. The focus this week in terms of economic reports will fall on the release of the minutes from the Bank of England's last policy meeting where the committee elected to hold UK interest rates at 5.25%. It is possible that two members of the 9-strong panel voted to raise rates by a further quarter-point this month but the tone and language used in the minutes will be heavily scrutinized for any indication of a further rise in rates over the coming months. Meanwhile, the release of the February consumer price index tomorrow should prove pivotal as UK inflation is expected to exceed the BoE's 2.0% target for a 10th consecutive month. Consumer prices are expected to remain relatively unchanged at 2.7% year-on-year in February but the retail price index, which may prove more influential in shaping consumer price expectations, is expected to rise modestly from 4.2% in January. RPI inflation has doubled in the past year to the highest level since 1992 and if the figures exceed 4.2% last month, we can expect the Pound to strengthen as it will look very likely that UK interest rates will rise for a fourth time since last August.
Data Released 19th March

U.S 17:00 NAHB Housing Market Index (March)

written by Adam Solomon

The Dollar has come under renewed pressure over the past trading session, falling 0.1% against the Euro and a further 0.4% versus the Pound following a mixed bag of U.S economic data. Firstly, producer prices rose more than initially anticipated after energy prices accelerated in February and the figures support the Fed's view that inflationary pressures continue to be the biggest risk to economic expansion. Prices gained 1.3% following a 0.6% decline the previous month and with producer price inflation showing signs of accelerating, it will be difficult for the Federal Reserve to begin lowering interest rates this year. Over the past month, energy prices have risen 3.5% from January, which has filtered through to the price of fuel jumping 5.3%, the biggest monthly gain since October 2005. However, the Dollar failed to find support in the aftermath of the figure and also remained relatively unchanged after a separate report showed an unexpected drop in jobless claims over the past week, which indicates that the U.S labour market remains healthy. However, the U.S economy continues to be hampered by the slump in housing and manufacturing with reports yesterday showing that regional surveys in New York and Philadelphia declined beyond expectations. As a result, the Dollar declined against the majors and from a technical perspective the trend is beginning to increasingly likely that the U.S currency will continue to slide against both the Euro and the Dollar.

In terms of economic data, the focus today will fall on the monthly consumer price index, which will provide another gauge of inflation, and prices are expected to rise in February following a significant increase in petrol prices over the same period. The Dollar may find some support if the report exceeds initial expectations as it will look increasingly optimistic that the Federal Reserve won't be able to cut interest rates as inflation continues to threaten the pace of economic growth. Policy makers meet next week to discuss the current risks to price stability and it is widely anticipated that interest rates will remain unchanged at 5.25% for a sixth time this month. A separate report released this afternoon may also provide a boost to Dollar sentiment as U.S industrial production is poised to rise by 0.3% last month, which will provide an indication of a rebound in factory production and manufacturing output following the decline in January. However, it can also be argued that the Dollar may continue to decline this afternoon and fall to the weakest level this year against the Euro as the preliminary report on U.S consumer confidence may show that sentiment fell to the lowest level in six months. Lower stock prices and higher energy costs are expected to cause a downturn in confidence this month with the index expected to drop to a reading of 89.0 from 91.3 in February.

The positive sentiment surrounding the Euro continued yesterday as the single currency closed last night marginally higher against both the Pound and the Dollar despite a host of seemingly weak economic reports. The harmonised index of consumer prices showed that inflation remained below the European Central Bank's 2.0% target for a sixth successive month in February. Consumer prices in the Euro-zone increased 1.8% year-on-year last month, which was unchanged from January despite the recent rise in German inflationary pressures. Oil prices have declined a massive 24% from a record level in July last year, which has helped keep inflation below target but that has not stopped the ECB from raising interest rates consistently over the past eight months. However, policy makers within the ECB's governing council have expressed concerns that price increases will accelerate over the coming months, giving companies more scope to raise prices and encourage workers to seek higher wages. Therefore, an increase in labour costs combined with record low unemployment will help fuel inflation and force the Central Bank to continue raising interest rates beyond 4.0%.

Data Released 16th March

U.S 12:30 Consumer Price Index (February)

U.S 12:30 Real Earnings (February)

U.S 13:15 Industrial Production (February)

- Capacity Utilisation

U.S 14:00 Michigan Sentiment (March Prelim)

written by Adam Solomon

In early trade yesterday, the Pound continued to decline against the majors, falling to a fresh eight month low versus the Euro and dropping near the yearly lows against the Dollar despite a strong supply of UK economic data. It appears that Sterling continues to suffer and is proving more sensitive to the unwinding of carry trades than the Euro over the past two weeks. Therefore, it looks increasingly likely that the Pound will continue to fall against the single currency over the coming weeks but by the close of trading last night, the Pound had managed to claw back ground against the Japanese Yen and in turn finished the session 0.1% higher versus the Euro. In terms of economic data, UK jobless claims fell to the lowest level in over a year last month after economic growth accelerated to the fastest pace since 2004, which will only add to the case for a further rise in UK interest rates. Policy makers within the Bank of England's monetary policy committee will be watching developments in the labour market very closely as inflation has remained above the 2.0% target for the past nine months. A separate gauge of the report also showed that growth in average earnings accelerated to 4.2% in the first quarter of 2007, which was significantly higher than anticipated and the BoE has previously noted that wage growth will only fuel the flames of inflation. As a result, it looks increasingly likely that policy makers will raise rates for the fourth time since August over the next two months with the market currently anticipating a further quarter-point hike in May.

Initially, the Euro made strong gains against Sterling but finished the session marginally lower against the UK currency following a distinct lack of economic data released in the Euro-zone. However, the Euro has continued to appreciate against the Dollar this morning as a report in Germany showed that inflation had unexpectedly accelerated in February. The core rate of inflation in Europe's largest economy rose to 1.9% from 1.8% in January with consumer prices increasing 0.5% following the introduction of the value-added tax increase at the start of the year. The report will only fuel speculation that the ECB will need to continue raising interest rates this year despite recent reports suggesting that Euro-zone inflation has stayed below the Bank's 2.0% target. However, policy makers within the governing council believe this to be a temporary measure and following a rebound in retail sales and higher energy prices, the Central Bank are likely to lift rates for the eighth time since late 2005. The Euro has remained largely unchanged against the majors in the aftermath of the report this morning but the ECB monthly bulletin may provide an insight into monetary policy. The report is expected to reiterate the recent statement from the chairman, Jean-Claude Trichet, who said that upside risks to price stability remain and the Central bank will monitor developments over the coming month.

The Dollar fell further yesterday, closing last night 0.3% lower against the Pound and the Euro despite a host of positive economic reports, which exceeded initial expectations. The U.S current account deficit narrowed by much more than anticipated in the fourth quarter of 2006 with the shortfall coming in at $195.8 billion from the third as lower oil prices reduced imports. The U.S current account, which represents the broadest measure of trade, is believed to be the single biggest risk to global stability but the report yesterday indicated that the deficit may narrow this year for the first time since 2001. However, the Dollar failed to capitalise on the report, rising modestly against the Euro as a separate report from the Commerce department showed that U.S import prices rose less than forecast in February, which may help keep inflation under control and increase the chances of an interest rate cut in the second half of the year. However, the Dollar may receive a timely boost this afternoon following a barrage of economic data released in the States. The focus will fall on the monthly producer price index, which is expected to show that prices rose in February led by an increase in oil and petrol costs.

Data Released 15th March

EU 09:00 ECB Monthly Bulletin

EU 10:00 Harmonised Consumer Price Index (February)

U.S 12:30 Producer Price Index (February)

U.S 12:30 Initial Jobless Claims (w/e 10th March)

U.S 12:30 Empire State Index (March)

U.S 13:00 TIC's Net Capital Inflow (January)

U.S 16:00 Philly Fed Index (March)

written by Adam Solomon

The Dollar came under increased pressure against the majors yesterday, falling a further 0.2% versus the Euro and also fell modestly against the Pound following a disappointing report on the U.S retail sector. Growth in sales came in well under expectations in February, increasing just 0.1% from the previous month despite forecasts of a 0.3% gain as higher fuel prices combined with colder weather limited consumer spending. The Federal Reserve have been quick to acknowledge the significance of a strong retail sector and the figures yesterday have sparked concerns that consumer spending will be unable to support economic growth this year. The focus today in terms of economic data will fall on the release of U.S current account balance, which is expected to show that the deficit narrowed from a record level in the fourth quarter of last year as lower oil prices reduced imports. The shortfall, which represents the broadest measure of trade in the States, is expected to fall from $225.6 billion in the third to $203.5 billion by the turn of the year, narrowing for the first time since 2001. Recent reports have suggested that the overwhelming deficit represents the single biggest risk to global stability and any signs that it has narrowed in the final quarter of 2006 may provide a timely boost to the Dollar.

The positive sentiment surrounding the Euro continued yesterday as the single currency closed last night 0.2% higher against both the Pound and the Dollar following yet another positive report on the German economy. The ZEW Investor confidence survey rose well above expectations and the index will only provide further evidence that economic growth in Europe's largest economy will be able to sustain momentum this year following the fastest expansion since 2000. Investor confidence has risen to the highest level in eight months in March and it seems increasingly likely that the German economy will be able to overcome the increase in sales tax and a slowdown in U.S economic growth. As a result, the Euro made widespread gains against most high-yielding currencies in the aftermath of the figure and overnight the single currency has increased to the highest level against the Pound since August last year. A separate report yesterday also showed that German consumer spending exceeded growth in disposable incomes last year for the first time in six years and combined with recent positive reports on manufacturing and unemployment, the European economy will continue to gather momentum.

The Pound has declined heavily against the majors in the wake of the political unrest and the threat of a Labour rebellion as we drop back towards the yearly lows against both the Euro and the Dollar overnight. Initially, Sterling managed to make modest gains against the U.S currency after a report from the Office of National Statistics showed that Britain's trade deficit narrowed by the most in a year in January. The shortfall in trade came in at £6.2 billion, the lowest since October 2005 as imports fell and exports jumped 8.8% from the previous month. However, the Pound has failed to capitalise on the positive report as the Stock market continues to plummet and the political fiasco over the Trident Weapons programme threatens Sterling sentiment. The focus today in terms of economic data will fall on the monthly jobless report, which is expected to show a further fall in unemployment from 2.9% in January. In addition, a separate gauge of the report will be watched closely as average hourly earnings are expected to remain largely unchanged in the first three months of 2007. The Bank of England have expressed concerns that wage growth will be the primary driver of inflation this year and therefore a rise in average earnings will increase the chances of another rate increase.

Data Released 14th March

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

UK 09:30 Unemployment (February)

U.S 12:30 Current Account Balance (Q4)

U.S 12:30 Import / Export Prices (February)

written by Adam Solomon

The Pound came under considerable pressure against the majors yesterday, dropping 0.7% versus the Euro and a more modest 0.1% against the U.S Dollar following the resignation of the deputy leader of the House of Commons, Nigel Griffiths, who quit the government in protest at plans to renew the UK's Trident nuclear weapons system. Initially, the positive sentiment surrounding the Pound continued from last week following a band of economic data, which showed an unexpected rise in UK factory-gate inflation while a separate report showed a substantial rise in house prices. The producer price index, which is a measure of inflation in the manufacturing and industrial sector, rose for a third consecutive month in February, adding to the case for a further rise in UK interest rates. Output prices gained 0.3% from January, which was just higher than initial expectations, while the core rate rose 2.7% from this stage last year. Generally, you would expect Sterling to make gains against the majors as a separate report showed that annual house price inflation surged higher in January to 10.9% from 8.2% the previous month. Therefore, the average cost of a home rose 2.1% between December and January and it seems that higher interest rates have yet to dampen growth in the UK property market. However, a separate report this morning is in sharp contrast to the figures yesterday as House prices rose at the slowest pace in nine months in February according to the Royal Institution of Chartered Surveyors.

The Dollar came under further pressure against the Euro yesterday despite a distinct lack of economic data released in the States but the U.S currency may receive a timely boost this afternoon following a report on the retail sector. Sales in the U.S are widely expected to have increased in February following a significant rise in wage growth over the same period that will keep consumers spending and provide a support to economic growth. Sales may rise 0.3% from January and the figures will provide further evidence that consumer spending, which accounts for two-thirds of the economy, will be able to sustain momentum and supplement the slump in the housing and manufacturing sectors. However, should the report come in weaker than anticipated, it might rekindle concerns that the slump in housing could initiate a consumer slowdown.

The Euro made widespread gains yesterday, firming 0.6% against the Dollar and by the close of trading last night was 0.7% higher versus the Pound despite a fundamental lack of economic data released in the Euro-zone. Although, the influential IfW index raised its forecast for German economic growth this year from 2.1% to 2.8% while it also expected the European Central Bank to raise interest rates a further 50 basis points to stand at 4.25% by September. Therefore, the Euro managed to claw back the recent gains made against Sterling and the single currency may receive a further boost this morning as German investor confidence is expected to rise to the highest level since July. The ZEW index for European economic research may rise to a reading of 3.2 in March from 2.9 the previous month as evidence mounts that the German economy will overcome the value-added tax increase at the start of the year. Elsewhere, a separate report released later this morning may show sustained growth in the manufacturing sector as European industrial production is expected to rise 0.4% in January while output may increase to annual rate of 4.2%.

Data Released 13th March

UK 09:30 Global Trade Balance (January)

EU 10:00 Industrial Production (January)

GER 10:00 ZEW Expectations Balance (March)

U.S 12:30 Retail Sales (February)

U.S 14:00 Business Inventories (January)

written by Adam Solomon

Following on from last week, the Dollar made modest gains against both the Euro and the Pound on Friday after the monthly U.S job report showed that the economy added 97,000 jobs to payrolls last month, which was slightly ahead of expectations, while the unemployment rate surprisingly shrank to 4.5%. Initially, the Dollar managed to claw back the recent gains made against Sterling as a separate report from the Commerce department showed that the U.S trade deficit unexpectedly narrowed in January as export growth rose to a record 1.1% from December. There is a host of significant economic data released in the States this week with the focus falling on the monthly consumer price index, which is expected to show that inflation remains at an elevated level in February. Prices are expected to stay fairly unchanged from the previous month with the core rate of inflation coming in above the Federal Reserve's target at 2.7%. Elsewhere, the Dollar may receive a much needed boost following the release of the U.S current account balance on Wednesday, which is expected to show that the deficit narrowed in the fourth quarter. The full-year deficit, measured as a percentage of gross domestic product, represents the biggest threat to stability in the world economy and may shrink to $203 billion from $225 billion in the previous quarter.

The Euro failed to consolidate on the recent gains made against Sterling as we traded well above 1.4700 by the close of trading on Friday as the European Central Bank
raised interest rates for the seventh time in this tightening cycle but failed to announce a further rise in rates next month. The shift in tone and language used in the accompanying press conference seemed to suggest that the ECB will continue to monitor the risks to price stability and will probably lift interest rates to 4.00% over the coming months. However, the chairman of the Central Bank, Jean-Claude Trichet, failed to use the same terminology, "strong vigilance" in his statement, which gives the market notice that interest rates are set to rise the following month. That sentiment was echoed by a member of the ECB's governing council, Klaus Liebscher, who stated that the Central Bank would need to continue monetary tightening because inflation remains a threat. However, with oil prices declining heavily since the fourth quarter of 2006, Euro-zone inflation has remained below the Bank's 2.0% target for the first year since 1999.

The Pound has managed to make significant gains against both the Euro and the Dollar since Friday despite the Bank of England's decision to leave interest rates on hold at 5.25%. We will have to wait until next week for the release of the minutes from the policy setting meeting in order to gauge how the committee voted this month but a further quarter-point increase is still on the agenda with the market anticipating a rise in rates by June. The Pound also managed to remain firm despite a surprisingly negative report on UK factory production, which unexpectedly fell for the first in three months in January following the Pound's dramatic appreciation against other major currencies. However, UK manufacturers have shown an increase in confidence in recent months and that may feed through to higher producer prices in the data for February. The index, released this morning, is expected to show that output prices increased 0.2% in February while the annual rate may stay unchanged at 2.1%. Elsewhere, the unemployment data on Wednesday will be watched closely for any insights into monetary policy as the jobless rate is expected to fall further while average earnings will also feed through to increased inflationary pressures.

Data Released 12th March

UK 09:30 Producer Price Index (February)

written by Adam Solomon

The Euro unexpectedly fell against the majors by the close of trading last night despite the European Central Bank's decision to raise interest rates for the seventh time in the current tightening cycle following the fastest economic expansion since 2000. However, it was widely anticipated that policy makers would hike rates a further quarter-point with the benchmark lending rate currently standing at 3.75%. However, the Euro failed to consolidate on the recent gains made against Sterling following a shift in the tone and language used in the accompanying press conference. In February, Trichet gave a strong indication that interest rates were set to rise the following month, saying that "strong vigilance" would be required in order to maintain risks to price stability. However, in the statement yesterday the chairman seemed to adopt a less hawkish stance, which has since diminished the prospect of a back-to-back rate increase in April, declaring that "upside risks to price stability remain in the medium term." The press conference also highlighted the underlying feeling within the Central Bank that current rates are still at an "accommodative" level and that will surely prompt policy makers to continue monetary tightening over the coming months. It can also be argued that the description of the current benchmark lending rate as "moderate" as apposed to "low" has fuelled speculation that the ECB will only raise rates once more this year.

The Dollar managed to make modest gains against the Pound yesterday and rose 0.4% versus the Euro despite a distinct lack of economic data released in the States as we build up to the Nonfarm payroll numbers this afternoon. The recent positive movement from the Dollar provides some insight that the market is not paying too much attention to the disappointing ADP employment report earlier in the week. However, following a significant monthly rise in the number of jobless claims through February, it is widely expected that the U.S economy added fewer workers to payrolls over the past month. The labour market is showing signs of cooling and yesterday the weekly jobless figures showed that the number of people out of work and claiming benefits actually fell by 10,000 to an annual rate of 328,000, which is significantly higher than the 2006 average. The Dollar may come under some considerable pressure this afternoon if job growth proves to be at the weakest level in two years in February with the economy struggling to overcome weakness in the housing and manufacturing sectors. The consensus is for a projected 95,000 increase in payrolls from a 111,000 gain in January while the unemployment rate is expected to stay unchanged at 4.6%.

The Pound managed to firm up an additional 0.2% against the Euro by the close of trading last night despite the Bank of England's decision to keep interest rates unchanged this month as the MPC continues to assess the impact of three previous rate hikes since August. The nine-strong committee led by the governor, Mervyn King, elected to hold rates at 5.25% but has indicated over the past month that one more quarter-point increase would be necessary in order to bring inflation back towards the 2.0% target by the second half of the year. Following a substantial drop in retail sales over the past month combined with a slowdown in service sector growth, it seems that higher interest rates are having a negative impact on consumer sentiment. However, it can also be argued that higher borrowing costs have yet to cool the UK housing market, which has continued to show signs of growth over the past month with prices gaining 1.8% from January. The Pound may receive a timely boost this morning following a report on UK industrial production, which is expected to show modest growth in January while manufacturing output may stay unchanged with the annual growth rate at 2.3%.

Data Released 9th March

UK 09:30 Industrial Production (January)

- Manufacturing Output

U.S 13:30 Trade Balance (January)

U.S 13:30 NonFarm Payrolls (February)

- Unemployment
- Average Hourly Earnings

U.S 15:00 Wholesale Inventories (January)

written by Adam Solomon

The Euro managed to make modest gains against the Dollar yesterday and by the close of trading last night was virtually unchanged versus the Pound amid cautious trade ahead of the ECB interest rate announcement and press conference this afternoon. The single currency also managed to shrug off a worse-than-expected report on German manufacturing orders, which surprisingly fell in January following a decline in foreign demand. Orders dropped 1.0% from December as the introduction of the value-added tax increase continues to hamper consumer spending while export demand wanes following the Euros 9.0% appreciation against the Dollar in the last year alone. The Euro may continue to make gains against the majors today as we anticipate a further rise in European interest rates this afternoon after the chairman, Jean-Claude Trichet, indicated last month that "strong vigilance" would be needed to ensure risks to price stability do not materialize. Policy makers will therefore increase the benchmark lending rate for the seventh time since late 2005 and in the accompanying press conference, Trichet may signal another rate hike in April. However, should the tone and language of the statement shift to a less hawkish stance, the Euro may come under some pressure as the prospect of a back-to-back rate increase diminishes.

The Dollar continued to decline yesterday, falling 0.4% against the Euro and a further 0.5% versus the Pound after the ADP employment report showed that U.S companies added just 57,000 jobs in February, the fewest since July 2003. The figures correlate with a sustained slowdown in U.S economic expansion as companies reduce hiring following the downturns in the housing and manufacturing sectors. The report will provide an insight into Nonfarm Payrolls tomorrow, which is expected to come in under expectations following the rise in weekly jobless claims over the past month. However, despite the recent weakness in housing, manufacturing and investment, the U.S economy is still expected to rebound sharply over the next quarter with economic growth accelerating to 3.0% by year-end.

The Pound managed to hold firm yesterday following a distinct lack of economic data released in the UK as we build up to the Bank of England interest rate announcement at midday. It is widely anticipated that the monetary policy committee including the governor, Mervyn King, will hold interest rates at a 5-year high as policy makers continue to assess the impact of three previous rate increases since August last year. In the past month, the BoE's quarterly inflation report has indicated that the MPC will need to raise rates by a further quarter-point over the coming months in order to bring inflation back towards the 2.0% target. Following the significant rebound in retail sales over the past month, there is a slim chance that the Central Bank will move as early as today but with Service sector growth expanding at the slowest pace in five months in February, it is more likely that the BoE will keep rates on hold at 5.25%. However, following the surprise rise in rates in January, there is a distinct possibility that the BoE will act this month as growth in the housing market continues to gather momentum and wage growth poses an increased risk to inflation.

Data Released 8th March

GER 11:00 Industrial Production (January)

UK 12:00 Bank of England Interest rate announcement

EU 12:45 ECB Interest Rate Announcement

EU 13:30 ECB Press Conference

U.S 13:30 Initial Jobless Claims (w/e 3rd March)

written by Adam Solomon

The recent positive sentiment surrounding the Dollar diminished yesterday as the U.S currency declined 0.6% against the Pound and fell 0.2% versus the Euro following a worse-than-expected report on the U.S housing market. The National Association of Realtors released their monthly survey, which showed a 4.1% drop in pending home sales in January and provides further evidence that the biggest slump in 17-years has yet to peak. Elsewhere, the Dollar continued to decline as a separate report from the Commerce Department showed that factory orders dropped a considerable 5.6% in January, which represents the biggest monthly drop in over six years. However, earlier in the session the Dollar did receive an unlikely boost as a report from the labour department showed that unit labour costs accelerated more than anticipated in the revised estimate for the fourth quarter, suggesting inflationary pressures remain. A separate gauge of the report showed that U.S worker productivity grew less than initially estimated in the last quarter but with inflation still showing signs of rising, the Federal Reserve are unlikely to reduce interest rates over the coming months. There is a distinct lack of economic data released in the States today with the focus falling on the ADP employment report, which may provide an insight in the monthly U.S job report this Friday.

The Pound rose against the majors yesterday, firming 0.6% versus the Dollar and also traded 0.3% higher against the Euro by the close of trading last night following a report from the British Retail Consortium, which showed that UK retail sales accelerated 5.6% in February from this stage in 2006. Growth in sales rose well above expectations, rising by the biggest amount in 9-months and the report has fuelled speculation that retailers would take advantage of demand and push prices higher over the coming months, leading to increased inflationary pressures. Therefore, the Bank of England will need to raise interest rates over the coming months with many analysts predicting a further quarter-point increase by June.

The Euro managed to continuing making modest gains against the Dollar yesterday but edged 0.3% lower versus the Pound despite a seemingly positive report from the European Union. Economic growth in the Euro-zone accelerated 0.9% in the fourth quarter as exports increased at the fastest pace in six years as companies increased spending and hiring to meet demand from overseas. As result, unemployment in the Euro-region fell to a record low and that is expected to propel economic growth in 2007. However, the Euro failed to consolidate on the gains made against Sterling and the single currency came under some pressure as a separate report showed that retail sales fell 1.0% in January following the increase in value-added tax in Germany at the start of the year. There is a sparse supply of significant economic data released in Europe this morning as we build up to the ECB interest rate announcement tomorrow. The focus will fall on German manufacturing orders, which is expected to increase in January with orders rising a projected 0.4% from December and with growth in manufacturing accelerating beyond expectations last month, the ECB will be concerned that the pace of expansion will stoke inflationary concerns.

Data Released 7th March

GER 11:00 Manufacturing Orders (January)

U.S 13:15 ADP Employment Report (February)

U.S 19:00 Fed Beige Book

written by Adam Solomon

The Pound came under increased pressure against the majors yesterday, dropping 0.7% versus the Dollar and falling to the lowest level this year against the Euro following a report on UK service sector growth. The CIPS survey showed that service industries expanded at the slowest pace in five months in February, which will only provide a further indication that UK interest rates may have peaked. The index from the Chartered Institute of Purchasing and Supply fell to a reading of 57.4 down from 59.2 in January. Although a reading above 50 indicates growth, the pace of expansion has seemingly slowed to a degree, which threatens the prospect of any further monetary tightening as three previous rate increases begin to cool the economy. Therefore, it now looks increasingly likely that the Bank of England will hold rates at 5.25% on Thursday as policy makers wait to gauge the impact of the highest lending rate in five-years. As a result, the Pound dropped against the Dollar to close near a 2-month low last night as growth in services slowed and retail sales fell to a three-year low over the same period. However, the Pound has managed to hold firm overnight following a report from the British Retail Consortium, which has shown a considerable rebound in retail sales in February. Growth in sales came in well above expectations, rising 3.3% year-on-year last month, which represents the biggest rise since the middle of 2006 and provides some evidence that higher interest rates have yet to dampen consumer spending.

The Dollar managed to shrug off another round of poor economic data to close last night 0.7% higher against the Euro and also rose to a near two month high versus the Pound. The Institute of Supply Management released their monthly index on U.S service sector growth, which unexpectedly expanded at a slower pace than previously anticipated, which suggests that the slowdown in economic growth may filter beyond housing and factory production. The ISM index for non manufacturing accounts for 90 per cent of the economy and last month fell to a reading of 54.3 - the slowest pace in nearly four years. However, the Dollar managed to remain firm despite the report but may come under some pressure this afternoon as a report on the U.S housing market is expected to show another monthly drop in home sales.

The Euro has made substantial gains against the Pound over the past week as we traded just under 1.4700 for the majority of the session yesterday but the single currency actually fell 0.7% versus the Dollar after a report on European service industries. Growth in the sector, which accounts for the largest proportion of the economy, slowed in February after the introduction of the value-added tax increase in Germany dampened consumer sentiment. The Purchasing Manager's index fell to a reading of 57.5 from 57.9 in January and the report will only fuel speculation that economic growth may slow this year following the fastest expansion in six years in 2006. However, a separate gauge of the report showed an improvement in business expectations and combined with low unemployment and a pick-up in manufacturing, we fully expect the ECB to raise interest rates this week. The Euro may come under some pressure this morning following a host of significant economic data released in the Euro-zone. The focus will fall on European retail sales, which is expected to drop 0.3% in January after higher interest rates and the VAT increase in Germany continues to weigh on sentiment.

Data Released 6th March

EU 10:00 Retail Sales (January)

EU 10:00 Revised GDP (Q4)

U.S 13:30 Productivity (Q4 Revised)

- Unit Labour Costs

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

U.S 15:00 Factory Goods Orders

written by Adam Solomon

Following on from last week, the Pound came under considerable pressure against the majors towards the end of the week, dropping to lowest level versus the Euro this year and falling through the trend support at 1.9400 against the Dollar. Following a dramatic fall in the UK stock exchange last week, Sterling has continued to drop against both the Euro and the Dollar and as a result, the technical outlook has deteriorated to a degree that suggests we may decline further. Therefore, Euro and Dollar buyers would be well advised to place a stop order in the market following the Pound's 4% depreciation against the Euro since mid January alone. It is a significant week in terms of economic data but the focus will inevitably fall on the Bank of England interest rate announcement on Thursday where policy makers are expected to hold rates at 5.25%. Inflation is still running well ahead of the 2.0% target and that may prompt the MPC to raise rates once more this year but with consumer prices dropping by the most in 4-years in January, the committee may wait to assess the impact of three previous rate hikes since August. In terms of economic data, the Pound may be given a reprieve this morning with the release of the CIPS Services survey, which may show a rise to a reading of 59.8 with a figure above 50 indicating growth.

The positive sentiment surrounding the Euro has picked up pace over the past week ahead of the European Central bank interest rate announcement on Thursday. Policy makers are widely expected to raise rates by a further quarter-point following a band of hawkish rhetoric from a number of ECB officials including the chairman, Jean-Claude Trichet. However, that eventuality has been largely factored in to current market movement and therefore the focus will fall on the accompanying press conference where Trichet may indicate that further monetary tightening will be necessary in order to maintain risks to price stability. The Euro has continued to appreciate against the Pound since Friday, falling through the trend support around 1.4800 and the technical outlook seems to suggest that we will fall further over the coming week. In terms of economic data, the single currency may continue on the front foot this morning following the Purchasing Manager's report on the Euro-zone service sector, which is expected to remain at a level consistent with annualised GDP growth.

The Dollar has managed to make considerable gains against Sterling since Friday and that trend may continue this week ahead of a key week in terms of U.S economic data. The focus will undoubtedly fall on the monthly job report, which is expected to show that the U.S economy added 123,000 jobs to payrolls in February while the unemployment rate is forecast to remain unchanged at 4.6%. There are risks to the downside following the recent trend of the weekly jobless claims and some direction on the U.S labour market may be evident in the ADP employment report on Wednesday. Elsewhere, the Dollar may come under some pressure this afternoon as the Institute of Supply Management release their monthly non manufacturing index, which is expected to show that growth in U.S service industries slowed in February.

Data Released 5th March

09:30 CIPS Services Survey (February)

09:00 PMI Services (February)

15:00 ISM Non Manufacturing Index (February)

written by Adam Solomon

The Dollar managed to claw back significant gains against the majors yesterday, firming an additional 0.6% versus the Euro and a further 0.3% against the Pound as we dropped back through 1.9600 by the close of trading last night. The Dollar rallied following the release of the ISM manufacturing index, which unexpectedly rose in February, suggesting that the slump in factory production may have peaked. The gauge of manufacturing rose to a reading of 52.3 last month after dropping to 49.3 in January and that was the lowest since April 2003 with a reading above 50 indicating expansion. The figure correlated with the views of the Federal Reserve Chairman, Ben Bernanke, who stated yesterday that there's a reasonable possibility that the pace of economic growth will quicken in the second half of the year. Elsewhere, the Dollar also received a boost following the personal income and expenditure report, which showed that spending increased beyond expectations in January while the Core PCE Deflator suggested inflation will continue accelerate and keep the Fed on red alert. Personal spending increased 0.5% following a 0.7% rise in December while a separate gauge of the report showed that the Fed's preferred measure of inflation increased 0.3%, the biggest monthly rise in five months. The Dollar may consolidate on the recent gains against the majors as the sole piece of economic data is expected to show that consumer sentiment in the Michigan area advanced to a reading of 95.0 in the February estimate.

The Euro came under modest pressure against the majors yesterday, dropping 0.1% versus the Pound following the released of the harmonised consumer price index, which showed that the core rate of inflation remained steady at 1.9%, suggesting that inflationary pressures have continued to moderate in the Euro-zone. In addition, the single currency has lost further momentum this morning as German retail sales declined by more than anticipated in January despite the record drop in unemployment in the area. Sales slumped a considerable 5.1% from December, which provides further evidence that the introduction of the VAT increase at the start of the year is beginning to weigh heavily on consumer sentiment. The Euro may struggle to bounce back today as a separate report later this morning is expected to show that producer price inflation dropped to an annual rate of 2.9% in January from 4.1% in December.

The Pound has managed to stage a mini-revival over the past trading session as a selection of reports have shown that UK house prices have risen beyond the decade high achieved earlier in year, prompting further speculation that rising interest rates will do little to curb demand. That sentiment was further emphasised yesterday as a report from the Bank of England showed that UK mortgage approvals rose beyond expectations in January, providing a further indication that growth in the housing market will strengthen over the coming months. UK house price inflation reached the highest level in more than three years last month and that will only create further speculation that the Bank of England will need to raise interest rates beyond the current 5.25%. Elsewhere, the Pound continued to make gains against the Euro as a separate showed that UK manufacturing expanded at the fastest pace in three years in February. The CIPS survey rose to a reading of 55.4 last month, the highest reading since July 2004.

Data Released 2nd March

EU 10:00 Producer Price Index (January)

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

written by Adam Solomon

Over the course of the week, the Pound has come under further pressure against the majors, dropping by the most in two weeks versus the Euro following a particularly soft rhetoric from a member of the Bank of England's monetary policy committee. David Blanchflower, who last year opposed the August rate hike, said that the Bank expects the Pound to decline heavily over the next 2-years as inflation slows. He also stated that consumer price inflation, which has scaled back from a decade-high in January, will continue to moderate over the coming months, prompting speculation that UK interest rates may have peaked. Sterling came under further pressure yesterday, easing 0.1% against the Dollar and a further 0.2% versus the Euro despite a report from the Nationwide Building society showed that UK house prices rose for a 12th month in February. The average cost of a home gained 0.7% in February following a 0.3% rise the previous month and it seems that three interest rate rises since last August have yet to slow the property market. The issue of supply and demand will continue to fuel prices and that will give the bank of England scope for a further rate rise over the next few months. However, the Pound failed to make any gains and a separate report showed that consumer confidence unexpectedly fell in February and it seems increasingly likely that spending will be able to sustain the robust growth of 2006.

The positive sentiment surrounding the Euro has continued throughout the week as we have achieved a new six-week high against the Dollar and also made robust gains against the Pound following a band of positive economic reports. The EC sentiment index showed that confidence in the European economy unexpectedly rose in February for the first time in four months as unemployment fell to a record low and inflation stayed below 2.0%. A separate report earlier in the day showed that German unemployment fell to the lowest level in over five years following the fastest economic expansion in 6-years, which has encouraged companies to step up hiring. The Euro failed to consolidate on the recent gains made against the Dollar in the aftermath of the reports but a hawkish statement from a member of the ECB governing council gave further support to the single currency. A statement from Axel Weber indicated that he would be recommending a further tightening of monetary policy beyond the predicted quarter-point hike in March.

The Dollar has managed to remain firm against the Pound over the past two days despite a damaging report on U.S durable goods orders, which fell by more than forecast in January. The report illustrated that excess inventories encouraged companies to limit spending as orders fell 7.8%, the biggest monthly decline since October last year. However, the Dollar managed to make modest gains against the majors yesterday as the revised estimate for U.S GDP showed that the economy grew at an annual rate of 2.2% in the fourth quarter, which was significantly slower than government estimates. The figures portray a pattern consistent with moderating growth over the past year while a separate gauge of the report showed that the Fed's preferred measure of inflation rose less than previously forecast. The U.S currency also managed to stay firm despite a report on the U.S property market, which showed that new homes sales fell by the most in 13-years in January, providing further evidence that the slump in housing has yet to peak. Data Released 1st March

UK 09:30 Mortgage Approvals (January)

UK 09:30 CIPS Manufacturing Survey (February)

EU 10:00 Flash HICP (February)

U.S 13:30 Initial Jobless Claims (w/e 24th Feb)

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

- Core PCE Deflator

U.S 15:00 ISM Manufacturing (February)

U.S 15:00 Construction Spending (January)

written by Adam Solomon