Daily Insight

The Pound made robust gains against the majors yesterday, rising 0.2% versus the Euro and by the close of trading last night had broken through the $2.00 barrier against the Dollar following a stronger-than-expected report on UK house prices. The Nationwide index showed that prices actually doubled expectations in June despite initial forecasts for prices to remain relatively unchanged at 10.5%. The Bank of England are scheduled to decide next week on UK interest rates and the report yesterday will increase the chance of a further quarter-point increase in July. Elsewhere, the Confederation of British Industry released their monthly survey on the pace of retail activity over the past month while the British Bankers' Association reported that mortgage approvals rose unexpectedly in May. The Pound continued to make gains after the governor of the Bank of England publicly stated that the balance for inflation risks remain to the upside and gave a strong indication that a further quarter-point increase would to little to harm domestic consumption. In terms of economic data, the positive sentiment surrounding the Pound may continue this morning ahead of a report on UK consumer confidence and the final estimate of gross domestic product.

The Euro lost ground for the fourth consecutive trading session against the Dollar yesterday and also declined against the Pound following a mixed bag of European economic data. The M3 three month moving average was significantly higher than anticipated and showed that money supply into the Euro-zone threatens to increase the already persistent inflationary pressures. The chairman of the European Central Bank, Jean-Claude Trichet, has been criticised by a number of members from the governing council for placing too much emphasis on the impact on money supply on monetary policy. Nevertheless, the Euro continued to decline against the majors and may come under further pressure this morning following a host of economic reports. The EC sentiment index is expected to show that industrial and consumer confidence fell modestly in June as higher interest rates combined with the VAT increase at the start of the year begins to weigh on households' disposable income.

The Dollar crashed through the $2.00 level against the Pound yesterday but continued to make modest gains versus the Euro following a particularly hawkish statement from the chairman of the Federal Reserve, Ben Bernanke. Following the Fed's decision to hold U.S interest rates at 5.25%, the accompanying statement seemed to suggest that policy makers had real concerns that inflation may fail to moderate over the coming months. It was the eighth consecutive month that U.S rates remained unchanged and speculation has been growing that the Fed would need to retain a tightening bias towards the end of the year as the economy continues to show signs of growth. The Dollar may also find a reprieve this afternoon as U.S consumer spending probably rose in May as higher wages helped supplement the rise in fuel costs.

Data Released 29th June
UK 09:30 Mortgage Approvals (May)
UK 10:00 Consumer Confidence (June)
UK 09:30 Final GDP (Q1)
EU 09:30 Flash HICP (June)
EU 09:30 EC Business Climate Index (June)
EU 10:00 EC Sentiment Index (June)
- Industrial/Consumer Confidence
U.S 13:30 Personal Income / Expenditure (May)
U.S 14:45 Chicago PMI (June)
U.S 15:00 Michigan Sentiment (June Final)
U.S 15:00 Construction Spending (May)

written by Adam Solomon

The Pound failed to test the $2.00 level yesterday and by the close of trading last night had fallen 0.1% on the session despite a particularly hawkish rhetoric from the deputy governor of the Bank of England, Sir John Gieve. In the meeting from the BoE's last policy meeting, Gieve along with the governor, Mervyn King, expressed concerns over rising inflationary pressures and actually voted to raise interest rates in June. In a speech in Guildford yesterday, the deputy governor emphasised that UK interest rates are still at a relatively low level and are helping to drive demand for loans and credit. The current benchmark lending rate of 5.50% is at the highest level in six years as inflation rose to a decade high in April and his comments yesterday will only serve to increase speculation that the MPC plan to raise rates again in July. However, the Pound failed to rally in the aftermath of his comments and actually traded lower following a report from the Confederation of British Industry. The survey showed that the pace of retail activity in the UK slowed significantly this month and provides an indication that consumer spending will continue to decline in response to higher borrowing costs. In terms of economic data, the focus today will fall on the Nationwide housing report, which is expected to show that prices remained relatively unchanged in June, rising to an annual rate of 10.5%.

The Euro failed to consolidate on the recent gains made against the Dollar yesterday and also remained largely unchanged versus the Pound following the distinct lack of economic data released in the Euro-zone. Nevertheless, the single currency may receive a timely boost this morning following the release of the M3 three-month moving average, which is expected to show that money supply into the Euro-zone actually rose to 10.5% in May. The chairman of the European Central Bank has been publicly criticised by other members of the governing council for placing too much emphasis on money supply as an indication of inflation. The ECB have raised interest rates on eight occasions since late 2005 despite consumer prices remaining below the 2.0% ceiling for the majority of 2007. Elsewhere, German unemployment may influence the market as the jobless rate is expected to remain unchanged at 9.2%, the lowest level since records began in 1990.

Initially, the Dollar made modest gains against the Pound yesterday but a report on U.S durable goods orders scuppered any chance of close under 1.9950 as concerns grow on the strength of the projected rebound in business investment. Demand for durable goods fell 2.8% in May to represent the biggest drop in four months following a revised 1.1% increase in April. The decline in orders combined with the prolonged slump in housing will threaten the pace of U.S economic growth this year and may force the Federal Reserve to revise initial growth forecasts. Nevertheless, the region manufacturing surveys including the Philly Fed index and the Empire State Index have showed that growth in factory production continues to expand and that may encourage policy makers to retain a tightening bias in the tonight's FOMC rate announcement.

Data Released 27th June

UK 07:00 Nationwide House Prices (June)

GER 08:55 Unemployment (June)

EU 09:00 M3 / 3 Month Moving Average (May)

U.S 13:30 Final GDP / Deflator (Q1)

U.S 13:30 Initial Jobless Claims (w/e 23rd June)

U.S 19:15 FOMC Rate Announcement

written by Adam Solomon

The Dollar remained largely unchanged against the majors yesterday, holding just under the $2.00 level versus the Pound and closing last night 0.1% lower against the Euro following another round of poor U.S housing data. Sales of new homes fell 1.6% to an annual rate of 915,000 in May, which provides an indication that demand is still floundering as we enter the second half of the year. The report reflects recent surveys on existing home sales and housing starts, which have provided an insight into the faltering recovery in the sector as the Federal Reserve raised interest rates 17-times in under two years. Elsewhere, the Dollar also remained firm despite a separate index on U.S consumer confidence, which unexpectedly fell this month to the lowest level since August following higher fuel prices and growing concerns over the labour market. The outlook for consumer spending is worrying as confidence amongst the U.S consumer sank to the lowest level in 10-months while sentiment would also have a significant bearing on monetary policy. Nevertheless, despite the decline in housing and weaker consumer confidence data, the Dollar actually made modest gains in the aftermath of the reports amid speculation that the Fed will retain a tightening bias in the monthly FOMC rate announcement tomorrow.

The Euro remained little changed against the Dollar and the Pound yesterday despite a host of recent reports that is beginning to illustrate the impact of a strong a Euro on the rest of the economy. The single currency has risen to a record level against the Dollar this year, which is beginning to weigh on European export growth as demand from the U.S falters. The only notable release yesterday centred around the European current account balance, which showed that the surplus actually turned into a deficit in the month of April as the Euro rose from 1.3350 to peak at 1.3682 against the ailing U.S Dollar.

The Pound also failed to consolidate on the recent gains made against the majors yesterday, closing well under the $2.00 level for the second consecutive session while holding steady above 1.4800 against the Euro. Despite the apparent lack of UK economic indicators yesterday, the focus today will surely fall on Tony Blair's departure from Downing Street after 10-years as Prime Minister. Meanwhile, the Pound may come under some pressure later this morning following a report from the Confederation of British Industry with the survey expected to show another sharp decline in the volume of retail activity. However, if the distributive trades balance came in ahead of initial forecasts, it would bolster expectations that UK interest rates may reach 6% before the end of the year. Recent comments from a number of Bank of England policy makers have indicated that the pace of consumer spending would need to moderate in order for UK inflation to hit the government's 2.0% target.

Data Released 27th June

UK 10:00 CBI Distributive Trades Balance (July)

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

written by Adam Solomon

The Euro managed to claw back some modest gains against the Pound and also rose versus the U.S Dollar as German consumer confidence unexpectedly leaped to the highest level in six months in June. The index of sentiment jumped to a reading of 8.4 from 7.4 the previous month and suggests that increased confidence in the German economy is propelling consumer spending. Recent reports after provided an indication that growth in Europe's largest economy may have peaked but with spending showing robust signs of growth and unemployment at a record low, German economic expansion may continue at the fastest pace in six years. That sentiment was echoed by the Ifo economic institute, who last week reported that German business confidence unexpectedly declined this month as exports and business investment waned. However, the Munich based institute yesterday raised its growth forecast from 1.9% last December to 2.6% this year while German economic growth is likely to hit 2.5% in 2008. The report provides an indication that the economy will continue to expand despite the introduction of the value-added tax increase at the start of the year and the inevitable drop in European exports.

Initially, the Pound continued to rise against the Dollar yesterday, testing the $2.00 level for the majority of the morning session before consolidating back towards the support at 1.9950. Earlier this year, the Pound reached the highest level against the U.S currency for 26-years at 2.0130 and there is a distinct possibility that we may retest that level amid speculation that the Bank of England will raise rates next month. Following the fundamental lack of UK economic data, the Pound also lost ground against the Euro, dropping 0.2% by the close of trading last night. Nevertheless, there is a number of key data releases over the remainder of the week with the Nationwide and Hometrack house price surveys taking centre stage. Both reports are expected to emphasise the robust pace of growth in the sector while the Bank of England's report on UK mortgage approvals may prove slightly less positive.

By the close of trading last night, the Dollar remained virtually unchanged against the Euro and also consolidated back towards 1.9950 versus the Pound following the latest round of U.S housing data. Existing home sales fell to the lowest level in nearly four years in May, reinforcing concerns that the worst slump in over 17-years has yet to peak with purchases dropping 0.3% from April. A separate gauge of the report showed that the supply of unsold homes swelling the market jumped to the highest number in 15-years as weakening demand combined with a decline in home construction make the housing market the single biggest threat to U.S economic growth. Nevertheless, the report yesterday was almost in line with initial expectations and therefore, the data failed to provide any clear direction to investors. As a result, the focus today will fall heavily on the new homes sales report, which is expected to show that purchases also dropped in May. Following the unexpected jump in the number of new home sales in April, the latest round of housing data has all but ended the recent speculation of a recovery in demand.

Data Released 26th June

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

U.S 15:00 Consumer Confidence (June)

written by Adam Solomon

Following on from last week, the Euro continued to slide against the majors, falling to a fresh three-month low versus the resurgent Pound following a barren run of weak economic reports. By the close of trading on Friday, the single currency had fallen a further 0.2% as German business confidence plummeted in the wake of a rebound in oil prices and rising European interest rates. The Ifo sentiment index fell by much more than anticipated to a reading of 107.0 in June amid increased speculation that economic growth in the region may slow from the fastest pace in six years. The report on Friday followed an unexpected drop in the ZEW survey for investor confidence and a decline in German manufacturing orders earlier in the week. Following the European Central Bank's decision to lift interest rates this month, there is a host of significant economic data released this week, which may have an influence on future monetary policy. In recent months the chairman of the ECB, Jean-Claude Trichet, has been publicly criticised by other members of the governing council for relying too heavily on the impact of money supply. Therefore, the focus will largely fall M3 moving average on Wednesday, which is expected to show that monetary aggregates remain well in excess of ECB comfort levels, rising 10.3% year-on-year in May.

The Pound made robust gains against the majors last week, rising to the highest level since March against the Euro and also testing the illusive $2.00 level amid the release of the minutes from the Bank of England's last policy meeting. The report revealed that a back-to-back rate increase in June was a real possibility as four members, including the governor Mervyn King, opted to raise interest rates this month in order to quell inflation. Nevertheless, the remaining policy makers of the nine-strong committee voted to keep rates unchanged as King remained in a slight minority for the first time in two years. The Pound rallied furiously in the aftermath of the report as speculation mounted that UK interest rates would rise to 5.75% in July, the fifth quarter-point hike in under a year and to the highest level in six-years. In terms of economic data, the Pound may come under some pressure over the course of this week amid the release of UK mortgage approvals on Friday. Recent reports have indicated that rising borrowing costs are beginning to slow the property market and discourage first-time buyers as the report is expected to show that the number of mortgages approved fell to 106,000 in May.

The Dollar came under renewed pressure against the Pound last week, dropping back towards the $2.00 level by the close of trading on Friday despite survey evidence that points to a sharp rebound in the U.S manufacturing sector. There is a plethora of significant economic reports released this week that may influence Dollar sentiment including the monthly FOMC rate announcement. The consensus is that the Federal Reserve will hold interest rates steady at 5.25% but the recent volatility in the U.S bond market reflects the renewed uncertainty surrounding U.S interest rates. At the start of the year, the Fed were expected to start cutting interest rates in the third and further quarters but recent statement from a number of officials indicate that the Fed are likely to maintain a tightening bias amid concerns over rising inflation. Elsewhere, the Dollar may struggle to make any gains this afternoon following the release of the U.S housing report. Existing home sales will be closely watched as investors attempt to gauge the pace of activity in the property market, which has shown few signs of growth in recent months.

Data Released 25th June

U.S 15:00 Existing Home Sales (May)

written by Adam Solomon

The Dollar remained largely unchanged against the majors yesterday, dropping a modest 0.1% versus the Pound despite a host of positive economic reports, which provides a further insight into the renewed optimism in the U.S manufacturing sector. The Philly Fed index is just the latest regional survey to show substantial growth in factory activity over the past month as the survey actually tripled the initial forecasts by rising to a reading of 18.0 in June. The unexpected rise in production in the Philadelphia region saw the index increase to the highest level since April 2005 as new orders doubled and companies reduced their inventories to the lowest level in a year. Elsewhere, the Dollar also failed to make any significant gains as an index of leading economic indicators rose slightly more than expected in May and gave a promising upward revision for the previous month. However, the weekly jobless report showed that the number of people out of work and claiming benefits actually jumped to an annual rate of 324,000 amid concerns over a softening in the U.S labour market, which threatens to curtail the pace of economic expansion.

The negative sentiment surrounding the Euro continued yesterday as the single currency failed to make any gains against the Dollar despite a positive report on the European manufacturing and service industries. The Purchasing Manager's index rose to a reading of 57.7 in the flash estimate for June amid record low unemployment and increased business investment. The fastest global growth in 30-years has provided a significant demand for European based goods, which has seen the economy accelerate at the fastest pace in over seven-years. The preliminary index of service sector growth, which accounts for two thirds of the economy, increased to a reading of 58.3 in June while growth in manufacturing also beat expectations with a figure above 50 indicating expansion. Nevertheless, the Euro was little changed in the aftermath of the report but may receive a timely boost this morning amid the release of the German Ifo sentiment index. The report is expected to illustrate that business confidence in Europe's largest economy remained at a near record level in June despite the surprising drop in the ZEW survey earlier this week.

The Pound has made robust gains against both the Euro and the Dollar over the past week as a hawkish rhetoric from the governor of the Bank of England was combined with the minutes from the Bank of England's last policy meeting where the MPC voted 5-4 in favour of holding rates this month. As a result, speculation has intensified that UK interest rates are set to rise by a further 25 basis points next month and subsequently, the Pound has risen to a fresh three-month high against the Euro. The UK currency also made modest gains against the Dollar yesterday following a report from the Confederation of British Industry. The Industrial trends survey showed that orders accelerated by more than expected in June, which indicates that the strength of the Pound is not currently weighing on overall demand. The report is just the latest round of economic data that suggests that the UK economy is continuing to show robust signs of growth and that is likely to lead to a further rate hike in either July or August.

Data Released 22nd June

GER 09:00 Ifo Sentiment Index (June)

EU 10:00 Industrial Orders (April)

written by Adam Solomon

The Pound hit a two-week high against the Dollar yesterday and also rose to a fresh three-month high versus the Euro following the release of the minutes from the Bank of England's last policy-setting meeting. The report illustrated that the governor of the Central Bank, Mervyn King, favoured a rate increase this month with the committee voting 5-4 to keep interest rates unchanged at 5.50%. Therefore, the governor, who in the event of a spilt decision has the casting vote, was placed in the minority for the first time in nearly two years. The contrast in sentiment among the nine-strong committee has increased speculation that UK interest rates are set to rise a further 25 basis points in July as the economy continues to show strong signs of growth. Mervyn King, Timothy Besley, John Gieve and Andrew Sentence argued for a quarter-point increase in June but were overruled as the remaining policy makers cited slower consumer spending and house price growth as the primary reason for holding rates this month. However, the latest round of housing data has showed that prices continued to rise throughout the majority of the UK and that may sway the monetary policy committee to increase borrowing costs to a fresh six-year high next month. In terms of economic data, the Pound may continue to make gains this morning as a report from the Confederation of British Industry is expected to show prolonged upward pressure on pricing measures, due in part to higher oil prices.

The Dollar continued to decline against the Pound yesterday, plummeting back towards the $2.00 level while the U.S currency also failed to capitalise on the Euro amid a sparse supply of economic data released in the States. Nevertheless, the U.S currency may receive a minor boost this afternoon as a gauge of leading U.S economic indicators is forecast to strengthen last month as stock prices jumped while the number of people filing for unemployment benefits unexpectedly dropped. The index is forecast to rise 0.2% in May following a significant fall the previous month and points to the direction of the U.S economy in the next six months.

The Euro remained relatively unchanged against the Dollar yesterday but continued to slide against the Pound, dropping to the lowest level since mid-March following the unexpected decline of German investor confidence. The single currency also failed to make any gains this morning as the flash estimate of the European purchasing manager's index showed that growth in manufacturing and the service sector unexpectedly rose in June. Growth in services, which accounts for two-thirds of the economy, accelerated at a rapid pace amid record low unemployment and increased business investment. The index rose to a reading of 57.7 from 56.8 the previous month despite growing concerns that the European economy had reached a plateau amid higher interest rates and rising energy prices. Nevertheless the fastest pace of global expansion in 30-years has provided a much-needed boost to European exports, which has been the principle driver of European economic growth.

Data Released 21st June

UK 11:00 CBI Monthly Trends (June)

U.S 13:30 Initial Jobless Claims (w/e 16th June)

U.S 15:00 Leading Indicators (May)

U.S 17:00 Philly Fed Index (June)

written by Adam Solomon

The positive momentum surrounding the Pound continued for a second consecutive session yesterday, rising a further 0.3% against the Euro and approaching 1.9900 versus the ailing U.S Dollar. Despite the distinct lack of economic data released in the UK yesterday, the Pound rallied on increased speculation that the Bank of England will lift interest rates to a fresh six-year high over the next couple of months. Therefore, the focus this morning will fall largely on the release of the minutes from the Bank of England's last policy meeting where the MPC decided to hold interest rates at 5.50%. The tone and language used in the report may provide an insight into the timing of the next rate increase but it will be interesting to gauge how many members of the nine-strong committee are leaning towards a tightening bias. Although recent reports have shown that consumer price inflation fell dramatically in April and again in May, one of the key reasons behind the Bank's hawkish stance are survey evidence pointing towards rising prices in the manufacturing, retail and service industries. In addition, the governor of the Bank of England, Mervyn King, is due to deliver a speech later this afternoon and following his comments last week in Cardiff, we can expect the tone of his statement to reflect heightened concerns over rising inflationary pressures.

The Euro continued to decline against a resurgent Pound yesterday but rose to a near two-week high versus the Dollar despite an unexpected drop in German investor confidence. After six consecutive increases, the ZEW expectations index slid to a reading of 20.3 in June from 24.0 the previous month despite initial forecasts of a rise towards 29.0. The report provides the latest indication that higher borrowing costs are beginning to weigh on investor confidence while growth in the Germany economy looks to have peaked following the fastest pace of expansion in seven-years. The European Central Bank raised its benchmark rate for the eighth time since the fourth quarter of 2005 as the chairman, Jean-Claude Trichet, indicated that a further rise in rates may be warranted this year. However, the negative report yesterday from the ZEW centre of economic research is not expected to influence monetary policy and a further quarter-point rate hike is still very much forecast in September.

The Dollar came under intense pressure against the majors yesterday, dropping to the lowest level in two-weeks versus the Euro and also falling significantly against the Pound following a barren run of weak economic data. Builders started work on fewer homes than anticipated last month as U.S housing starts fell 2.1% in May as lower house price and added incentives failed to increase demand as a glut of unsold properties continues to swell the market. The report provides an indication that the slump in home construction will continue to suppress economic growth and as a result, the Dollar came under further pressure against the Pound and the Euro. In addition, the sustained slump in housing is likely to help push down U.S treasury yields, diminishing the allure of dollar-denominated assets, which has recently been the catalyst for the Dollar rally.

Data Released 20th June

UK 09:30 BoE MPC Minutes 6th-7th June Meeting

written by Adam Solomon

The positive sentiment surrounding the Pound continued yesterday as the UK currency rose a further 0.3% against the Dollar and was up 0.2% versus the Euro by the close of trading last night following a pickup in UK house prices. Despite the pace of growth slipping to slowest pace in five months throughout London, prices gained 0.8% throughout the remainder of the UK with the annual rate increasing 13.2% from this stage last year. The report illustrates that while mortgage approvals have fallen, rising interest rates have yet to cool the housing market as property values accelerate at the fastest pace in almost three years. Elsewhere, the Pound managed to make further gains against the most of the major currencies as the Bank of England's quarterly bulletin seemed to mirror recent comments from the governor, Mervyn King, and increase the chance of further monetary tightening in the near-to-medium term.

The Euro managed to edge modestly higher against the U.S Dollar yesterday but came under further pressure versus the Pound despite a host of hawkish commentaries from a number of ECB officials. Firstly, a member of the Central Bank's governing council, Alex Weber, stated that risks to inflationary pressures remain a concern to policy makers while tightening interest rates wouldn't affect the pace of economic growth. That sentiment was echoed by the chairman of the ECB, Jean-Claude Trichet, who reiterated that faster growth in the global economy was exerting upward pressure on prices. As a result, the Euro advanced 0.1% against the Dollar on speculation that European interest rates may rise to 4.0% this year while the single currency may continue to make gains this morning amid the release of the ZEW survey for investor confidence. The index of investor and analyst expectations is forecast to top the highest level since June 2006 as growth in the German economy accelerated at the fastest pace in almost seven years.

The Dollar continued to slide against the majors yesterday as the inflation outlook moderated following the report on consumer prices, which came in weaker than expected in May. As a result, the Federal Reserve are likely to keep interest rates unchanged this year as pricing pressures continue to moderate while the economy expands at a moderate pace. The Dollar had been making robust gains early last week following the rapid increase in the treasury yield, which reached a five-year high on speculation that the Fed may need to raise rates towards year-end following a pick-up in manufacturing and recent reports that the slump in housing had peaked. However, a report last night exacerbated the slump in Dollar sentiment as the NAHB housing market index showed that homebuilding confidence was at the lowest level in nearly 16-years. In addition, the U.S currency may come under further pressure this afternoon as a separate report on the property market may show that builders started work on fewer homes than expected in May. U.S housing starts may fall to an annual rate of 1.472 million last month, modestly higher that the previous quarter where builders started work in the fewest number of homes since 1997.

Data Released 19th June

GER 10:00 ZEW Expectations Balance (June)

U.S 13:30 Housing Starts (May)

written by Adam Solomon

Following on from last week, the Dollar failed to consolidate on the recent gains made against the Pound as the U.S currency fell 0.5% by the close of trading on Friday following a host of seemingly negative economic reports. A measure of U.S inflation showed that consumer prices rose less than anticipated in May with the core rate rising just 0.1% excluding the volatile food and energy gauge. The annual rate of inflation rose just 2.2% in May, the smallest gain since March 2006 as the risks to price stability appear limited going into the second half of 2007. Elsewhere, separate reports in the U.S showed that the University of Michigan's sentiment index fell in the preliminary estimate for June while reports from the Federal Reserve gave conflicting ideas on the strength of the manufacturing sector. The Empire state index showed that factory production in the New York area increased dramatically this month while U.S industrial production remained unchanged following a 0.4% increase in April. As a result, the Dollar came under intense pressure versus the Pound and rose above 1.9800 ahead of a sparse week in terms of U.S economic data.

The Euro failed to capitalise on a weak Pound last week and dropped to a 2-month low against the U.S Dollar amid a distinct lack of economic reports released in the Euro-zone. Europe's trade deficit with the far east swelled by a third in the first quarter of the year as the gap in trade with China expanded 33% in the January-to-March period. However, the single currency may receive a timely boost this week as the focus switches to the German economy amid the release of the ZEW survey into investor confidence and the Ifo index for business sentiment. The consensus forecast suggests that sentiment will remain near a record high in June as the German economy continues to expand at a robust pace despite higher interest rates and the increase in value-added tax at the start of the year.

Initially, the Pound came under severe pressure against the majors last week after consumer price inflation moderated to 2.6% year-on-year in May while average hourly earnings increased less than forecast. Nevertheless, the governor of the Bank of England managed to increase Sterling sentiment after his comments in Cardiff increased speculation that UK interest rates will rise by a further 25 basis points. Therefore, the focus this week will fall heavily on the minutes from the Bank of England's last policy meeting where the nine-strong committee elected to hold UK rates at 5.50%. The report should provide an insight into the timing of the next rate increase and it will be interesting to ascertain how many members of the MPC are switching towards a tightening bias. In terms of economic data, the Pound has remained fairly stable this morning despite a report from Rightmove plc, which showed that London house prices rose that the slowest pace in five months.

Data Released 18th June

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

written by Adam Solomon

The Pound remained largely unchanged against the majors yesterday, closing back under 1.9700 versus the U.S Dollar despite an initial positive move after a report showed that UK retail sales growth accelerated beyond expectations in May. Sales climbed 0.4% last month following a modest decline in April as lower unemployment, rising house prices and increased optimism over the pace of economic growth helped fuel consumer spending. The report comes in the aftermath of a speech from the governor of the Bank of England, Mervyn King, who signalled earlier this week that UK interest rates may need to rise at least once more this year. In addition, a report earlier this week showed that UK unemployment has reached the lowest level since September 2005 and with consumer confidence currently running at the highest level for 18-months, the likelihood of a rate hike in July or August seems almost certain.

However, the Pound failed to make any gains against both the Euro and the Dollar as a report from the Royal Institution of Chartered Surveyors showed that UK house prices rose at the slowest pace in a year last month. Prices have risen 10% in the space of 12 months and the report yesterday is just the latest indication that higher interest rates are beginning to weigh on the UK property market. The average cost of a home in the UK rose to £196,893 in the quarter through to May, increasing to an annual rate of 10.6% according to the UK's biggest mortgage lender. Amid a sparse supply of economic data, the Pound may continue to trade down against the Euro today after closing last night under 1.4800 level.

The Dollar managed to consolidate against the majors yesterday, rising a further 0.1% versus the Pound and holding at an 11-week high against the Euro amid speculation that the Federal Reserve may need to tighten interest rates towards the end of the year. The U.S currency received a further boost as producer prices rose by more than anticipated in May as record fuel prices threatens a pick-up in inflation. Prices paid to U.S companies increased 0.9% last month and the report reflects recent comments from the Federal Reserve that inflation won't moderate as previously forecast. There is a host of significant economic data released in the U.S this afternoon with the focus falling on the consumer price index, which is expected to show that a broader measure of inflation rose 0.6% in May. Elsewhere, the Dollar may continue to make gains against the majors as a separate report may show that sentiment remains strong in the industrial sector.

Data Released 15th June

EU 10:00 Trade Balance (April)

U.S 13:30 Current Account (Q1)

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

- Ex Food & Energy

U.S 13:30 Empire State Index (June)

U.S 14:00 TICs - Net Capital Inflow (April)

U.S 14:15 Industrial Production (May)

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


written by Adam Solomon

The renewed optimism for the Pound was severely tested yesterday as the UK currency fell 0.2% against the Dollar and a further 0.1% versus the Euro as a report on the labour market showed that wage growth remained subdued in the first quarter of the year. The annual growth rate of UK average hourly earnings fell to a 15-month low of 3.3% in April from 3.5% in February and suggests that pay growth is unlikely to fuel the already moderating inflationary concerns. Nevertheless, it seems that the focus of the Bank of England has shifted to other upside inflation risks as recent comments from the chairman of the Bank of England, Mervyn King, increased the possibility of a further rate hike this year. In addition, a separate gauge of the report showed that UK unemployment fell to the lowest level in over 18-months in May as the pace of economic expansion encourages companies to step-up hiring. From a technical perspective, the Pound may continue to decline against the Euro as a reversal back under 1.4800 could be seen as a 'failed breakout', leading to further downside movement back towards the support levels at 1.4700 and 1.4625. However, the focus this morning will fall on the UK retail sales report given that recent survey evidence have indicated that higher interest rates are beginning to impact on consumer demand.

The Euro continued to decline against the Dollar yesterday, falling a further 0.1% by the close of trading last night to the lowest level in 11-weeks following the a sparse supply of European economic data. The single currency may receive a timely boost this morning as the ECB monthly bulletin is expected to mirror the tone of the recent press conference and signal that the Central Bank may continue raising interest rates to ensure that risks to price stability do not materialize. Elsewhere, a separate report on the preliminary estimate of consumer prices is expected to show that inflation remained unchanged at an annual rate of 1.9% in May.

The Dollar continued to gather momentum yesterday, rising against both the Euro and the Pound as data revealed a sharp jump in U.S retail sales, which rose by the most in a year in May. The report has eased concerns that record fuel prices combined with falling home values would damage consumer sentiment, which has been pivotal in supporting economic growth this year. Sales increased almost double initial forecasts to 1.4% in May and reached the highest level in 17-months as robust growth in the labour market combined with rising wage growth helped cushion the blow from the significant jump in fuel costs. The report provides an indication that growth in the retail sector would continue to place upward pressure on the already elevated U.S bond yields and increase expectations that the Federal Reserve would raise interest rates towards the fourth quarter or the beginning of 2008. As a result, the Dollar rose for the sixth consecutive day against the Euro and peaked at the highest level in 11-weeks before trading off towards the close last night.

Data Released 14th June

UK 09:30 Retail Sales (May)

EU 09:00 ECB Monthly Bulletin

EU 10:00 HICP (May)

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

U.S 13:30 Initial Jobless Claims (w/e 9th June)

written by Adam Solomon

The recent positive sentiment surrounding the Pound continued yesterday as the UK currency rose a further 0.3% against the Dollar and increased to the highest level since March versus the Euro following comments from Mervyn King, the governor of the Bank of England. Prior to the release of the monthly inflation report yesterday, King's comments revived speculation that the medium-term risks to price stability remain a concern to policy makers and a further rise in rates maybe necessary over the coming months. The hawkish tone of his statement was somewhat surprising considering that the UK inflation rate fell to the lowest level in seven months in May according to a report from the Office of National Statistics. The consumer price index, which advanced to a decade high at 3.1% in March, has since fallen to an annual rate of 2.5% in May and suggests that four interest rates increases since August last year are beginning to rein in inflation.

However, the report also shows that the UK annual rate of inflation exceeded the 2.0% target for the thirteenth consecutive month in May as higher earnings and credit growth are becoming entrenched in the economy. In terms of economic data, the Pound may consolidate on the recent gains made against the Euro as average hourly earnings are expected to continue running at 4.5% year-on-year in the first quarter. Euro buyers would be well placed to take advantage of the current rate or at least place a stop order in the market to protect against any adverse market movement. In addition, the Pound continues to trade under the trend resistance at 1.9758 versus the U.S Dollar and therefore buyers of this currency may wish to take advantage as we remain in a downward trend.

The Dollar managed to continue making gains against the Euro yesterday and also remained relatively strong versus the Pound despite the apparent lack of economic indicators released in the States. However, that trend may be reversed this afternoon as a report on U.S consumer spending may show that retail sales rose 0.6% in May as fuel prices reached a record level over the same period. Consumer sentiment has been floundering in recent months following the overwhelming number of subprime mortgage defaults. Nevertheless, strong growth in the labour market combined with higher wage demands are expected to improve consumer spending this year with the pick-up in business investment and factory output expected to sustain the economy in the second half of 2007.

Data Released 13th June

UK 09:30 Claimant Count Unemployment (May)

UK 09:30 Average Hourly Earnings (3 months to April)

U.S 13:30 Retail Sales (May)

U.S 13:30 Import / Export Prices (May)

U.S 15:00 Business Inventories (April)

U.S 19:00 Fed Beige Book Released

written by Adam Solomon

The Pound has managed to make robust gains against the majors this morning following a hawkish rhetoric from the Governor of the Bank of England, Mervyn King, who has stated that the MPC may need to continue raising interest rates in the short-term. In a speech to business executives in Cardiff last night, King emphasised that the monetary policy committee will be closely studying the risks to price stability and said that if capacity pressures, pricing intentions and inflation expectations remain elevated then the MPC would need to "take further action". Despite the Bank of England's decision to hold interest rates at a six-year high in June, data due this morning is expected to show that UK inflation exceeded the government's 2.0% target for the 13th consecutive month. The headline measure of the consumer price index may show that the annual rate of inflation moderated to 2.6% in May from 2.8% the previous month and may suggest that four interest rate increases since August have begun to cool the economy. The Pound had been in freefall against the Dollar but the speech from the governor of the Bank of England yesterday has managed to shift sentiment and if the report this morning shows that pricing pressures remained unchanged last month, the Pound may continue to make gains.

The recent positive sentiment surrounding the Dollar continued yesterday as the U.S currency rose modestly against both the Pound and the Euro by the close of trading last night. The sharp rise in bond yields last week combined with a number of hawkish statements from the chairman of the Federal Reserve, Ben Bernanke, has pushed the Dollar higher against most major currencies as the threat of a U.S interest rate cut looks less likely. There is a sparse supply of U.S economic indicators released this afternoon with the focus falling on retail sales tomorrow and growth in the manufacturing sector later this week.

The Euro continued to decline against the Dollar yesterday, dropping 0.1% by the close of trading last night and has also come under significant pressure versus the Pound following the distinct lack of economic data released in the Euro-zone. French and Italian industrial production both unexpectedly declined in April as the strength of the Euro threatens to curb export demand. The regional reports yesterday are the latest indication that growth in the European economy, which has expanded at the fastest pace in nearly seven years, has finally peaked. Factory output in both France and Italy dropped 0.8% from March despite initial forecasts of a 0.2% rise in production. The Euro advanced to the highest level on record against the Dollar in April and considering the slowdown in the U.S economy, European based goods are becoming less competitive.

Data Released 12th June

UK 09:30 Global Trade Balance (April)

UK 09:30 Consumer Price Index (May)

- RPI

EU 10:00 Industrial Production (April)

written by Adam Solomon

Following on from last week, the Pound has declined heavily against the U.S Dollar after the Bank of England elected to hold interest rates at 5.50% in June and further downside movement can be expected ahead of a packed week of UK economic data. Although the outcome of the two-day meeting was widely anticipated, the Pound had been rallying all week on increased speculation that the MPC could move early this month. The Pound came under severe pressure in the aftermath of the announcement, and by the close of trading on Friday had dropped towards 1.9600 against the Dollar despite a positive report on UK manufacturing. The report from the Office of National Statistics showed that factory production had increased for a second consecutive month in April with output rising 0.3% from the previous month. The report provides a strong indication that growth in the UK manufacturing sector will continue to gather momentum over the coming months as rapid growth in Europe helps cushion the effects from the Pound's dramatic appreciation against the Dollar this year. In terms of economic data, the focus this morning will fall on the UK producer price index, which is expected to show that inflationary pressures remained unchanged in May.

The Euro managed to claw back some modest gains against the Pound last week but continued to decline versus the U.S Dollar despite the ECB's decision to lift European interest rates for the eighth time since late 2005. In the accompanying press conference, the chairman, Jean-Claude Trichet, gave a strong indication that rates would rise at least once more this year as he said that the current benchmark lending rate still remains at an 'accommodative level. However, the Euro failed to make robust gains against the majors as a report in Germany showed that industrial production fell by the most in seven years in April. Factory output dropped 2.3% from March, which represents the biggest contraction since June 2000 and the first decline in six months as a strong Euro combined with the U.S slowdown threatens to curb European exports. The report suggests that growth in Europe's largest economy may have peaked following the fastest pace of expansion in over seven years. In terms of data, the Euro may continue to struggle this week as there is a sparse supply of economic indicators released in the Euro-zone with the focus falling on the May inflation readings and industrial output.

The recent positive sentiment surrounding the Dollar continued towards the end of the week as the U.S currency increased nearly 2.0% against the Pound and also rose to the highest level in two months versus the Euro following a string of positive economic reports. The U.S trade deficit showed that the gap in goods and services narrowed by more than anticipated in April as exports rose to a record level after the Dollar fell to a record low against the Euro earlier this year. The gap in trade in trade fell 6.2% from March to the lowest level in six months as overseas demand for American made goods soared. There is a host of significant economic reports released in the U.S this week with the focus falling on retail sales on Wednesday. The report is expected to show that growth in sales accelerated to 3.6% in May as record fuel costs drives consumer spending. Elsewhere, the Dollar may receive a further boost ahead of a host of U.S activity data while the market will also be paying close attention to the current account deficit and a speech from the Fed chairman, Ben Bernanke on Friday.

Data Released 11th June

UK 09:30 Producer Price Index (May)

- Output

written by Adam Solomon

The Pound came under renewed and sustained pressure against the majors yesterday, dropping 0.4% against the Euro and over 1.0% versus the U.S Dollar following the Bank of England's decision to hold interest rates at 5.50%. The nine-strong monetary policy committee including the governor, Mervyn King, elected to wait and assess the impact of the previous rate increases before a likely move in August. Although the decision to hold rates was widely anticipated, the Pound had been gathering momentum amid speculation that the MPC could move early and raise back-to-back in June. However, in the aftermath of the announcement, the Pound suffered and by the close of trading last night had fallen through 1.9700 versus the Dollar as the decision undermined the relative yield support for the Pound. Recent reports have indicated that rising borrowing costs, which remain the highest of all the Group of Seven countries, have begun to slow the housing market and is beginning to weight on consumer spending. The Pound is likely to continue the downward trend against the majors over the coming week as the MPC's decision to hold rates would of been influenced by the May consumer price index, which is released next Tuesday. In terms of economic data, the Pound may find some relief this morning as UK industrial production is expected to rise 0.2% in April while output may of increased 1.3% from a year earlier.

The Euro made significant gains against the Pound yesterday but came under renewed pressure versus the U.S Dollar amid a sparse supply of economic data released in the Euro-zone. The single currency was also undermined earlier today as a report in Germany showed that exports rose less than forecast in April as speculation continues to build that growth in Europe's largest economy may have peaked. German economic expansion, which has expanded as the fastest rate in seven years, has been heavily reliant of export growth but with the Euro rising to a record level against the Dollar this year, the demand for European based goods is dwindling. The disappointing report may correlate with a drop in factory orders and German industrial production is only expected to increase modestly in the figures released for April.

The Dollar managed to take advantage of the Pound yesterday, dropping through 1.9700 and also increasing 0.6% against the Euro amid speculation that U.S economic growth will gradually pick-up towards the end of the year. A number of economists are anticipating that the economy will expand at an annual rate of 2.6% following robust strength in the labour market and a rebound in the manufacturing sector. The report has fuelled speculation that the Federal Reserve will keep interest rates steady at 5.50% for the remainder of 2007 despite initial expectation of a cut towards the second half of the year. In terms of economic data, the Dollar may continue to make gains this afternoon as U.S trade data is expected to show that the deficit in goods and services narrowed slightly in April. The weakness of the Dollar, which fell to a record low against the Euro earlier this year, helped boost U.S exports to look far more attractive to foreign investors.

Data Released 8th June

UK 09:30 Industrial Production (April)

- Manufacturing Output

GER 11:00 Industrial Production (April)

U.S 13:30 Trade Balance (April)

written by Adam Solomon

The Euro declined against both the Pound and the Dollar yesterday despite the ECB's decision to lift interest rates by a further 25 basis points and to the highest level in six-years at 4.0%. The Euro stayed virtually unchanged against the majors in the aftermath of the announcement as the market looked to the accompanying press conference for a further indication of future monetary policy. The governing council, led by the chairman, Jean-Claude Trichet, reiterated that the current lending rate is still on the 'accommodative' side despite today's rate increase and he opened the door for a further hike later this year. In his statement, Trichet reiterated that the Central Bank would need to act in a 'firm and timely manner in order to ensure that price stability in the medium term is warranted. Recent statements from a number of ECB officials have indicated that the Central Bank is concerned that producer prices will continue to rise as the economy enjoys the fastest pace of expansion in over seven years. As a result, the Euro may continue to make gains against Sterling, especially if the Bank of England decide against a rise in rates tomorrow. Therefore, Euro buyers would be well placed to take advantage of the current buying rate or at least place a stop order above 1.4600.

The Pound continued to make modest gains against the Dollar yesterday and also rose 0.1% versus the Euro despite a report from the Confederation of British Industry, which showed that UK retail sales rose at the slowest pace since November last month. The report provides an indication that consumer spending will continue to decline over the coming months as the Bank of England continues to raise interest rates to the highest level since 2001. The Pound has been making steady gains this week amid increased speculation that the monetary policy committee would lift interest rates back-to-back in June after inflation reached the highest level in over ten-years. However, the considered view is that the MPC will hold rates steady at 5.50% this month and wait to assess the impact of four previous rate increases since August last year. As a result, the Pound may come under some pressure this afternoon and Euro and Dollar buyers would be well placed to work a stop order in the market to protect against any adverse movement.

The Dollar managed to claw back some modest gains against the Euro yesterday and remained virtually unchanged versus the Pound as U.S productivity rose less than anticipated in the revised estimate for the first quarter. Worker productivity increased at an annual rate of 1.0% in the first three months of 2007 while a separate gauge of the report indicated that labour costs rose more than expected. The report only emphasises recent comments from the chairman of the Federal Reserve, Ben Bernanke, who stated that the economy would expand at a moderate pace with persistent inflation concerns.

Data Released 7th June

UK 12:00 BoE Rate Announcement

U.S 13:00 Initial Jobless Claims (w/e 2nd June)

U.S 15:00 Wholesale Inventories (April)

written by Adam Solomon

The Euro managed to make marginal gains against the Pound yesterday and also advanced 0.2% higher versus the U.S Dollar as we build up to the ECB interest rate announcement this lunchtime. The governing council are widely expected to lift interest rates by a further 25 basis points with the benchmark lending rate rising for the eighth time in little over a year to stand at 4.0%. Following a host of hawkish statements from a number of ECB officials, the market has already factored in a rate increase in June and therefore the focus will fall on the accompanying press conference and the statement from the chairman, Jean-Claude Trichet. Recently, several members of the governing council within the Central Bank have publicly criticised Trichet's "over-reliance" on money supply as a gauge of economic performance and inflation. Nevertheless, the ECB are still expected to raise interest rates by a further quarter-point over the coming months and the Euro may rally if the statement provides an insight into the timing of the announcement. In terms of economic data, the single currency also received a boost yesterday as the Purchasing Manager's index showed that European service industries expanded for the first time in four months in May. Growth in the sector, which represents the largest proportion of the economy, has stagnated in recent months as higher borrowing costs and the VAT increase in Germany weighed on consumer sentiment.

The strength of the Pound has been gathering momentum this week and yesterday the UK currency increased a further 0.1% against the U.S Dollar following the stronger-than-expected report on UK service sector growth. Activity in both the manufacturing and service sector has been accelerating in recent months and will only boost interest rates expectations after the prices paid component of the reports also made strong gains. However, a separate report from the Chartered Institute of Purchasing and Supply showed that growth in services remained unchanged in May while retail sales fell from 2.4% in April to just 1.8% in May. Nevertheless, the Pound continued to make gains as we build up to the Bank of England interest rate announcement tomorrow where the MPC are expected to hold rates at 5.50% in June. Elsewhere, a report from the Nationwide Building Society has also provided some support for the Pound as UK consumer confidence reached the highest level in 18-months in May. The sentiment index rose to a reading of 99.0, increasing for the fourth consecutive month as consumers became increasingly optimistic about the labour market and the strength of the economy.

The Dollar continued to come under pressure yesterday, dropping modestly against the Pound and falling close to a 3-week low versus the Euro despite a strong report on U.S service industries. The Institute of Supply Management showed that its index reached the highest level in a year last month, confirming that the weakness in the U.S Dollar has not just provided a boost to the manufacturing sector. The components measure of the ISM report also showed that prices paid, employment and new orders all made strong advances in May and provided an indication that service sector growth would continue to support U.S economic growth. Elsewhere, the chairman of Federal Reserve, Ben Bernanke, tried in vain to boost the ailing Dollar as his comments reiterated that the Fed expects the housing slump to continue this year while inflation risks remain a concern to policy makers. In short, the statement emphasised recent sentiment that the Federal Reserve will keep interest rates on hold at 5.25% for the remainder of 2007.

Data Released 6th June

EU 12:45 ECB Interest Rate Announcement

EU 13:30 ECB Press Conference

GER 11:00 Manufacturing Orders (April)

U.S 13:30 Productivity (Q1 Revised)

- Labour Costs



written by Adam Solomon

The Euro managed to make marginal gains against the Pound yesterday and also advanced 0.2% higher versus the U.S Dollar as we build up to the ECB interest rate announcement this lunchtime. The governing council are widely expected to lift interest rates by a further 25 basis points with the benchmark lending rate rising for the eighth time in little over a year to stand at 4.0%. Following a host of hawkish statements from a number of ECB officials, the market has already factored in a rate increase in June and therefore the focus will fall on the accompanying press conference and the statement from the chairman, Jean-Claude Trichet. Recently, several members of the governing council within the Central Bank have publicly criticised Trichet's "over-reliance" on money supply as a gauge of economic performance and inflation. Nevertheless, the ECB are still expected to raise interest rates by a further quarter-point over the coming months and the Euro may rally if the statement provides an insight into the timing of the announcement. In terms of economic data, the single currency also received a boost yesterday as the Purchasing Manager's index showed that European service industries expanded for the first time in four months in May. Growth in the sector, which represents the largest proportion of the economy, has stagnated in recent months as higher borrowing costs and the VAT increase in Germany weighed on consumer sentiment.

The strength of the Pound has been gathering momentum this week and yesterday the UK currency increased a further 0.1% against the U.S Dollar following the stronger-than-expected report on UK service sector growth. Activity in both the manufacturing and service sector has been accelerating in recent months and will only boost interest rates expectations after the prices paid component of the reports also made strong gains. However, a separate report from the Chartered Institute of Purchasing and Supply showed that growth in services remained unchanged in May while retail sales fell from 2.4% in April to just 1.8% in May. Nevertheless, the Pound continued to make gains as we build up to the Bank of England interest rate announcement tomorrow where the MPC are expected to hold rates at 5.50% in June. Elsewhere, a report from the Nationwide Building Society has also provided some support for the Pound as UK consumer confidence reached the highest level in 18-months in May. The sentiment index rose to a reading of 99.0, increasing for the fourth consecutive month as consumers became increasingly optimistic about the labour market and the strength of the economy.

The Dollar continued to come under pressure yesterday, dropping modestly against the Pound and falling close to a 3-week low versus the Euro despite a strong report on U.S service industries. The Institute of Supply Management showed that its index reached the highest level in a year last month, confirming that the weakness in the U.S Dollar has not just provided a boost to the manufacturing sector. The components measure of the ISM report also showed that prices paid, employment and new orders all made strong advances in May and provided an indication that service sector growth would continue to support U.S economic growth. Elsewhere, the chairman of Federal Reserve, Ben Bernanke, tried in vain to boost the ailing Dollar as his comments reiterated that the Fed expects the housing slump to continue this year while inflation risks remain a concern to policy makers. In short, the statement emphasised recent sentiment that the Federal Reserve will keep interest rates on hold at 5.25% for the remainder of 2007.

Data Released 6th June

EU 12:45 ECB Interest Rate Announcement

EU 13:30 ECB Press Conference

GER 11:00 Manufacturing Orders (April)

U.S 13:30 Productivity (Q1 Revised)

- Labour Costs

written by Adam Solomon

The positive sentiment surrounding the Pound continued yesterday as the UK currency rose a further 0.1% against the Euro but made robust gains versus the U.S Dollar, closing last night well above the 1.9900 level for the first time in four-weeks. From a technical perspective, it seems evermore likely that the Pound will now test the resistance around the $2.00 level and could perhaps trade higher on speculation that the Bank of England may raise interest rates this week. As a result, the Pound has shrugged off a report this morning from the British Retail Consortium as UK retail sales rose at the slowest pace since November last month. Sales increased just 1.8% year-on-year in May, which represents the smallest gain in six months, following a 2.4% annual gain in April. The report provides a strong indication that consumer spending will continue to dwindle over the coming months after the Bank of England raised borrowing costs four times in nine-months in an attempt to bring inflation back towards target. The relatively soft tone of the BRC retail sales survey may convince policy makers to hold interest rates this month and await further assessment of the impact of previous rate hikes. Elsewhere, the Pound may remain on the front foot this morning as a separate report may show that growth in UK service industries remained at an elevated level in May, dropping modestly from a reading of 57.0 from 57.2 in April.

Meanwhile, the Euro advanced 0.3% against the fragile U.S Dollar yesterday following a report on European producer price inflation, which gave a strong indication that companies were intent on increasing prices and thusly weighing on the already strong inflationary concerns. The European Central Bank are scheduled to raise interest rates by a further 25 basis points tomorrow and many investors anticipate at least one further rate hike later this year. However, the chairman of the Central Bank, Jean-Claude Trichet, has resisted criticism from the newly appointed president of France, Nicolas Sarkozy and the governor of the Bank of France, Christian Noyer. Trichet's faith in the importance of money supply as a measure of inflation has recently been called into question and since Noyer sits with Trichet on the ECB's governing council, the
difference of opinion may extend to the decision on monetary policy. In terms of economic data, the Euro may receive a boost this morning as the Purchasing Manager's index into European service industries is expected to show further expansion in May while a gauge of retail sales may increase 0.3% from the previous month.

The Dollar continued to struggle against the majors yesterday and has failed to sustain the positive momentum from last week despite a host of stronger-than-expected U.S economic data. The U.S currency came under further pressure yesterday, dropping 0.7% against the Pound as factory goods orders rose less than anticipated in April with bookings rising just 0.3% following a 4.1% increase in March. The U.S economy has suffered the slowest pace of expansion in over four-years but recent reports have indicated that a pick-up in manufacturing activity would bolster economic growth in the second half of the year. Therefore, the negative impact of the report yesterday is thought to be a temporary setback as a weak Dollar makes U.S exports look considerably more attractive to overseas investors. Nevertheless, the Dollar may receive a timely boost this afternoon as the ISM non-manufacturing index is expected to show that growth in the U.S service sector stayed close to a three-month high in May.

Data Released 5th May

UK 09:30 CIPS Services Survey (May)

EU 09:00 Services PMI (May)

EU 10:00 Retail Sales (April)

U.S 15:00 ISM (non-manufacturing) Index (May)



written by Adam Solomon

The positive sentiment surrounding the Pound continued yesterday as the UK currency rose a further 0.1% against the Euro but made robust gains versus the U.S Dollar, closing last night well above the 1.9900 level for the first time in four-weeks. From a technical perspective, it seems evermore likely that the Pound will now test the resistance around the $2.00 level and could perhaps trade higher on speculation that the Bank of England may raise interest rates this week. As a result, the Pound has shrugged off a report this morning from the British Retail Consortium as UK retail sales rose at the slowest pace since November last month. Sales increased just 1.8% year-on-year in May, which represents the smallest gain in six months, following a 2.4% annual gain in April. The report provides a strong indication that consumer spending will continue to dwindle over the coming months after the Bank of England raised borrowing costs four times in nine-months in an attempt to bring inflation back towards target. The relatively soft tone of the BRC retail sales survey may convince policy makers to hold interest rates this month and await further assessment of the impact of previous rate hikes. Elsewhere, the Pound may remain on the front foot this morning as a separate report may show that growth in UK service industries remained at an elevated level in May, dropping modestly from a reading of 57.0 from 57.2 in April.

Meanwhile, the Euro advanced 0.3% against the fragile U.S Dollar yesterday following a report on European producer price inflation, which gave a strong indication that companies were intent on increasing prices and thusly weighing on the already strong inflationary concerns. The European Central Bank are scheduled to raise interest rates by a further 25 basis points tomorrow and many investors anticipate at least one further rate hike later this year. However, the chairman of the Central Bank, Jean-Claude Trichet, has resisted criticism from the newly appointed president of France, Nicolas Sarkozy and the governor of the Bank of France, Christian Noyer. Trichet's faith in the importance of money supply as a measure of inflation has recently been called into question and since Noyer sits with Trichet on the ECB's governing council, the
difference of opinion may extend to the decision on monetary policy. In terms of economic data, the Euro may receive a boost this morning as the Purchasing Manager's index into European service industries is expected to show further expansion in May while a gauge of retail sales may increase 0.3% from the previous month.

The Dollar continued to struggle against the majors yesterday and has failed to sustain the positive momentum from last week despite a host of stronger-than-expected U.S economic data. The U.S currency came under further pressure yesterday, dropping 0.7% against the Pound as factory goods orders rose less than anticipated in April with bookings rising just 0.3% following a 4.1% increase in March. The U.S economy has suffered the slowest pace of expansion in over four-years but recent reports have indicated that a pick-up in manufacturing activity would bolster economic growth in the second half of the year. Therefore, the negative impact of the report yesterday is thought to be a temporary setback as a weak Dollar makes U.S exports look considerably more attractive to overseas investors. Nevertheless, the Dollar may receive a timely boost this afternoon as the ISM non-manufacturing index is expected to show that growth in the U.S service sector stayed close to a three-month high in May.

Data Released 5th May

UK 09:30 CIPS Services Survey (May)

EU 09:00 Services PMI (May)

EU 10:00 Retail Sales (April)

U.S 15:00 ISM (non-manufacturing) Index (May)

written by Adam Solomon

Following on from last week, the Dollar received a timely boost on Friday after the release of the monthly U.S employment report, which showed that the economy added 157,000 jobs to payrolls last month. The figures were significantly higher than anticipated and the data provides an indication of the strength of the labour market as the unemployment rate held steady at 4.5% while average hourly earnings increased 0.3%. The U.S economy has suffered the worst pace of expansion in over four-years following the slump in manufacturing and the property market but recent reports have indicated that a strong labour market will continue to fuel consumer spending in the face of near-record fuel prices. However, the Dollar failed to sustain the positive momentum and later in the session continued to decline against the Pound as a separate report showed that U.S personal spending rose less than forecast in April. The Federal Reserve's preferred measure of inflation increased just 0.1% from the previous month and the figures supports the Fed's view that economic will pick-up in the second half of the year. The focus this week in terms of economic data will fall largely on the ISM non manufacturing survey tomorrow, which is expected to fall modestly in May but remain well above a reading of 50.0. Amid a sparse week of economic indicators, the report should provide an insight that growth in the services sector continues to expand at a reasonable pace.

The Euro declined against the Pound towards the end of last week, trading back towards 1.4750 by the close of trading on Friday as the Purchasing Manager's index of European manufacturing showed that growth in the sector slowed in May. The PMI index unexpectedly fell to a reading of 55.0 last month and although a figure above 50 indicates expansion, factory output expanded at the slowest pace in over a year. Recent reports have indicated that European economic growth, which has reached the fastest pace in over seven years, has finally peaked following higher interest rates and a slowdown in the U.S, which threatens to curb demand for European exports. The ECB are scheduled to meet on Wednesday and are expected to raise interest rates for the eighth time since late 2005 after clear signals from a number of ECB governing council members. Recent reports have indicated that mounting inflationary concerns will force the Central Bank to continue lifting rates beyond 4.0% this year. Further evidence of this may be provided in a report this morning, which is expected to show that producer price inflation rose 0.4% in April as companies increase prices following the fastest pace of economic growth since 2000.

The recent positive momentum surrounding the Pound continued on Friday as the CIPS survey showed that growth in the UK manufacturing sector unexpectedly accelerated in May. The index rose to a reading of 54.9 last month, the highest level since February as increased demand from Europe helped factories supplement higher interest rates and a stronger Pound. The unexpected growth in the sector is fuelling speculation that the Bank of England could raise interest rates to 5.75% as early as this Thursday in a bid to curb inflation, which has reached the highest level in a decade over the past month. The Pound has been making widespread gains in the build-up to the announcement but the considered view is that the monetary policy committee will resist lifting rates back-to-back in June and will wait until July/August when a rise in rates would coincide with the Bank's next quarterly inflation report.

Data Released 4th June

UK 09:30 CIPS Construction Survey (May)

EU 10:00 Producer Price Index (April)

U.S 15:00 Factory Goods Orders (April)

written by Adam Solomon

The Pound remained largely unchanged against the majors yesterday, holding steady around 1.4700 versus the Euro and rising modestly towards 1.9800 against the U.S Dollar despite another round of poor economic data. A report from the Bank of England showed that UK mortgage approvals fell considerably in April with lenders granting 107,000 home loans compared to a revised 112,000 the previous month. The report coincides with recent figures from the British Bankers' Association, which have shown that loans for home purchases have dropped to the lowest level in a year as the Bank of England continue to lift UK interest rates. In addition, the Central Bank are widely expected to raise the benchmark lending rate by a further 25 basis points over the coming months and a separate report yesterday showed that consumer credit dropped to the lowest in a decade. Recent reports from the Confederation of British Industry have shown a slump in retail sales over the past month and consumer spending is beginning to show signs of slowing after propelling the UK economy to fastest pace in 2-years.

The Euro received an unexpected boost yesterday and managed to consolidate on the recent gains made against Sterling after the EC sentiment index showed an unexpected rise in business and consumer confidence. An index of sentiment in the 13-nations sharing the Euro-zone surprisingly rose to the highest level in nearly six years in May as the jobless rate held close to a record low. Investors had initially forecast that the index would remain unchanged this month while a separate report showed that inflation continued to stay under the European Central Bank's 2.0% ceiling. However, that is not expected to deter the ECB's current monetary policy as the governing council look to raise interest rates for the seventh time since late 2005 in the first week of June. The pace of global expansion combined with rising domestic demand has boosted European exports that has propelled the economy to enjoy the fastest pace of growth in over seven years. However, it is yet unclear how much of an impact the slowdown in the U.S has hampered the demand for European based goods and if exports decline, the ECB will be forced to review their current monetary policy.

The Dollar came under renewed pressure yesterday, snapping a two day winning streak against the Pound as the revised estimate of U.S gross domestic product in the first quarter showed that the economy grew at the slowest pace in over four years. Following the dramatic slump in the housing market combined with a larger trade deficit and reduced business inventories, the economy grew at an annual rate of 0.6% in the first three months of 2007. However, recent economic reports have provided a strong indication that inventories are rising while new home sales in particular have showed signs of accelerating, adding to speculation that the worst slump in housing for over 17-years has finally peaked. In terms of economic data, the focus today will fall squarely on the monthly U.S employment report with the economy expected to add 125,000 jobs to payrolls in May. The Dollar may come further pressure if the report shows that the economy added fewer jobs than forecast while the unemployment rate is expected to stay unchanged at 4.5% and average hourly earnings up 0.3%.

Data Released 1st June

UK 09:30 CIPS Manufacturing Survey (May)

EU 09:00 PMI Manufacturing (May)

EU 10:00 Unemployment Rate (April)

EU 10:00 GDP (Q1 Details)

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

- Core PCE

U.S 13:30 NonFarm Payrolls (May)

- Unemployment / Average Earnings

U.S 15:00 ISM Manufacturing (May)

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

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

U.S 21:00 Domestic Auto Sales (May)

written by Adam Solomon