Daily Insight

The Pound remained largely unchanged against the Euro yesterday but continued the downward move versus the Dollar despite a stronger-than-expected report on the UK housing market and evidence of a revival in mortgage approvals. Recent surveys from Rightmove plc and Nationwide have shown that house prices rose at the slowest pace in 15-months in June, which suggests that higher interest are beginning to take effect. The Bank of England's monetary policy committee are expected to leave UK interest rates unchanged at 5.75% this Thursday as policy makers await further evidence that higher borrowing costs are beginning to slow the economy. Many households face the daunting prospect of renewing fixed-rate mortgages at much higher levels with the Bank of England expected to lift UK interest rates to 6.0% over the coming months. As a result, we can expect a significant squeeze on consumer spending and the Gfk gauge of confidence this morning will provide a timely insight on sentiment. Elsewhere, the Pound may continue to decline against the Dollar as we fall towards 2.0200 following last week's 26-year high amid the release of the CBI distributive trades balance, which is expected to fall to a reading of 15.0 this month.

The recent recovery of the U.S dollar continued yesterday on speculation that the recent turmoil in the subprime mortgage and credit markets would spread to other economies. Despite a spate of negative economic reports, which seemed to suggested that the slide in the property market is showing few signs of peaking, the Dollar remained resilient and made robust gains against the Pound following a 26-year low of 2.0650.
Money market have been pricing in a cut in U.S interest rates in the near-to-medium term and today brings the Fed's preferred measure of inflation, the core personal consumption expenditure deflator, which is expected to remain unchanged at 1.9%.

The Euro staged a dramatic rebound against the Dollar yesterday and managed to remain firm versus the Pound despite a host of weaker economic data. French producer price inflation and retail sales for July deteriorated, which provides further evidence that the overwhelming strength of the Euro is finally weighing on economic growth. Nevertheless, the single currency stood firm amid increased speculation of a surprise ECB press conference this Thursday. The chairman of the Central Bank, Jean-Claude Trichet is expected to keep European interest rates unchanged at 4.0% but investors will focus on the tone and language used in the accompanying press conference for an insight into the possibility of a rate hike in September. In terms of economic data, the Euro may continue to make gains against the Dollar this morning as the unemployment rate is expected to remain at the low of 7.0% while the EC sentiment index may point to robust growth in consumer and industrial confidence.

Data Released 31st July

UK 10:30 GFK Consumer Confidence (July)

UK 11:00 CBI Distributive Trades Balance (July)

EU 10:00 Unemployment Rate (June)

EU 10:00 EC Sentiment Index (July)

- Industrial/Consumer Confidence

- Business Climate Index

EU 10:00 Flash HICP (July)

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

- Core PCE Deflator

U.S 14:45 Chicago PMI (July)

U.S 15:00 Consumer Confidence (July)

U.S 15:00 Construction Spending (June)

written by Adam Solomon

The U.S Dollar has continued to consolidate against the majors, rising a further 0.8% versus the Pound over the past trading session after peaking above 2.0600 on Wednesday. The U.S currency made robust gains for the second consecutive day yesterday and it looks increasingly likely that the dramatic decline of the Dollar was severely over-exaggerated as we look to trade back towards the support at 2.0300. The furore surrounding the turmoil in the U.S subprime mortgage and credit markets has been the catalyst behind the Dollar falling to a 26-year low against the Pound and a new record low versus the Euro. A recent spate of negative economic reports has failed to put added pressure on the Dollar with the purchases of new homes in the U.S dropping by more than forecast in June. The news yesterday follows an earlier report, which seems to suggest that the slump in the property market continues to gather momentum as sales plummeted 6.6% last month, the most since January. Elsewhere, a separate report showed that U.S durable goods orders declined for a second month in June as consumer spending slowed and fuel prices rose. Nevertheless, the Dollar remained resilient and we can expect the U.S currency to make further gains today amid the release of the advanced estimate of economic growth in the second quarter.

The Euro snapped a three day losing streak against the Pound yesterday and by the close of trading last night, the single currency had increased 0.3% versus Sterling despite a barren run of European economic data. The Ifo sentiment index showed that German business confidence fell for a second consecutive month in July as the Euro's dramatic appreciation against the Dollar combined with rising oil prices threatens to curb the pace of economic expansion. The European economy has been accelerating at the fastest pace in seven years and has been overly reliant on export growth but the value of the euro is making goods more expensive and therefore curbing demand from overseas. Nevertheless, the Euro did receive a timely boost this morning as German consumer confidence rose to the highest level in eight months as unemployment in Europe's largest economy fell to the lowest level in 12-years.

The Pound has rallied to a fresh 26-year against the Dollar this week and has also risen to the highest level since February versus the Euro on speculation that the Bank of England may raise interest rates to 6.0% next month. However, over the past two trading sessions the UK currency has fallen significantly against most major currencies and from a technical perspective, it looks increasingly likely that the Pound will continue to decline in the near-term. The latest round of housing data has provided a strong indication that higher interest rates are beginning to weigh on the market as house prices rose at the slowest pace in 15 months in July. The cost of a home climbed just 0.1% from June, the smallest month-on-month gain since April last year following a 1.1% increase in June. The Pound fell for a second consecutive day as the report combined with a record £1.3 trillion of consumer debt is beginning to undermine the housing market and consumer sentiment.

Data Released 27th July

U.S 13:30 GDP (Q2 Advance)

- Deflator

- Core PCE

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

written by Adam Solomon

The renewed optimism for the Pound was severely tested yesterday as the UK currency failed to sustain the momentum against the Dollar and dropped 0.6% by the close of trading last night, the biggest one-day loss in over two months. The Pound has risen to a fresh 26-year high against the Dollar for the past six consecutive trading sessions amid concerns over the turmoil in the U.S subprime mortgage and credit markets. In addition, the Pound has managed to make gains despite a relatively mixed-bag of UK economic data and a less hawkish report from the monetary policy committee. However, the Pound fell considerably yesterday amid concerns that the problems in the U.S subprime mortgage sector could spill over to other economies and that has prompted speculation that Pound's historic rally against the Dollar may have peaked. Nevertheless, the Pound did manage to make further gains against the Euro yesterday and has remained towards the upside this morning despite a report on the UK housing market, which showed that prices rose at the slowest pace in fifteen months. The Nationwide index follows an earlier report from Rightmove plc with the average cost of a home in the UK rising just 0.1% in June.

The Euro has appreciated to a record high against the Dollar this week but by the close of trading last night had fallen 0.9% on the session to represent the biggest one day loss in over five months. Recent commentaries on the slowdown of the U.S economy seems to suggest that decline of the Dollar has been to this point, "over-done" with the belief that the market is over-reacting to the subprime mortgage crisis. Therefore, the Euro may continue to decline this morning following a report on the German Ifo Business climate index, which showed that confidence fell for a second consecutive month in July. The Ifo sentiment index fell to a reading of 106.4 from 107.0 in June and is just the latest indication that growth in Europe's largest economy is losing momentum. The Euro has appreciated 7.0% against the Dollar this year alone and combined with rising oil prices, growth in the German economy may have peaked.

The Dollar rebounded sharply yesterday, making robust gains against both the Pound and the Euro despite a report on the U.S housing sector, which showed that home resales fell for a fourth straight month in June. Purchases of existing homes declined 3.8% to an annual rate of 5.75 million, the slowest pace since November 2002, as the worst slump in housing since 1990 continues to hamper U.S economic growth. Nevertheless, the Dollar continued to rally against the Pound and the Euro in the aftermath of the report, leading to speculation that the sharp and overwhelming decline of the U.S currency may have been exaggerated. In terms of economic data, the Dollar may remain resilient today as a separate report on the housing sector is expected to show that the sales of new homes fell for the third consecutive month in June. Elsewhere, the Dollar may even find some support as orders for U.S durable goods increased by 1.9% in June, the most in three months amid increased business investment.

Data Released 26th July

EU 09:00 Ifo Business Climate Index (July)

EU 09:00 M3 (June)

- 3 month moving average

U.S 13:30 Initial Jobless Claims (w/e 21st July)

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

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

written by Adam Solomon

The Pound rose to yet another 26-year high against the Dollar yesterday, rising 0.3% on the session before easing back towards 2.0620 by the close of trading last night. The UK currency also made strong gains versus the Euro and briefly traded above 1.4925 for the first time since February despite an unexpected drop in the CBI Industrial trends survey. The quarterly report showed that UK industrial output dropped back into negative territory this month as the overwhelming appreciation of the Pound begins to hamper overseas demand. Nevertheless, Sterling continued to rally against the majors on increased speculation that the Bank of England look set to raise interest rates for the sixth time in twelve months in August. Despite, the less hawkish voting pattern of the most recent monetary policy meeting and the weakness of recent economic reports, the Pound has remained resilient, rising to the highest level against the Dollar since June 1981. Some investors will argue that the prospect of UK rates rising to 6.0% is already well factored in to current market movement and therefore the recent strength of the Pound can be attributed to merger and acquisition flow.

The Euro rose to another record high against the ailing U.S Dollar yesterday but fell a further 0.2% versus the Pound as growth in the Europe's manufacturing and service industries slowed more than initial forecasts in July. Growth in the sectors, which accounts for two thirds of the economy, accelerated despite the Euro's dramatic appreciation against the Dollar this year and significantly higher oil prices. The combined Purchasing Managers' index fell to a reading of 57.3 from 57.8 in June with a figure above 50 indicating expansion. However, the Euro's 7% surge against the Dollar this year has eroded the competitiveness of European export, which have previously driven the economy to the fastest pace of expansion in seven-years. In addition, rising oil prices may also weigh on domestic spending and help cool economic growth, which may well have an influence on the ECB's monetary policy.

The sustained and unrelenting decline of the U.S Dollar continued yesterday but there are signs this morning that Cable may have peaked above 2.0600 yesterday as the market fell sharply below that level overnight. The Dollar has also fallen to a fresh record low against the Euro over the past trading session and may struggle to make any significant gains this afternoon amid fears over the impact of the turmoil in the U.S subprime mortgage and credit markets. In terms of economic data, the Dollar may come under further pressure today following the release of the latest round of U.S housing data. Existing home sales probably fell for the fourth consecutive month in June as the worst slump in over 17-years continues to show few signs of abating. Sales of previously owned homes are expected to fall to an annual rate of 5.86 million last month, the lowest level since April 2003 as higher interest rates are declining home values discourage buyers.

Data Released 25th July

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

U.S 19:00 Fed Beige Book Published

written by Adam Solomon

The gradual but unrelenting decline of the U.S Dollar continued in earnest yesterday as the U.S currency fell to yet another record low against the Euro and also dropped to a fresh 26-year low versus the Pound. The significant Dollar weakness can be attributed to a number of factors, not least the diverging expectations on monetary policy as global Central Banks look set to continue raising interest rates. Whereas, the Federal Reserve have provided a strong indication that the next likely move is a cut in U.S borrowing costs, which currently stand at 5.25%. In addition, the Dollar has been hampered by the turmoil in the U.S subprime mortgage and credit markets and with the weakness in the housing market showing few signs of subsiding, we can expect the Dollar to remain under constant pressure over the course of this week. Therefore, the focus in terms of economic data will be the existing and new home sales reports on Thursday, which are both expected to show to show that worst slump in the U.S housing market for nearly twenty years is showing few signs of abating.

Although the Euro has risen to yet another record level against the Dollar, the single currency has come under significant pressure versus the Pound as we approach a week of key activity and sentiment surveys in the Euro-zone. The Euro may find little support this morning as the Flash estimate for European manufacturing is expected to show that expansion in the sector slipped in July but remains at a level consistent with a robust pace of growth. Elsewhere, the Purchasing Managers' index on the Euro-zone service sector, which accounts for the largest proportion of the economy, is also expected to slip from a reading of 58.3 in June. Later this morning, a separate report on the condition of European factory production may show that industrial orders rose 1.1% on the month in May. The report is just the latest indication that a strong Euro is doing little to weigh on overseas demand although the Ifo sentiment index on Thursday should provide a broader measure of growth.

The Pound surged to yet another high against the Dollar yesterday, closing last night above 2.0600 while the UK currency also managed to make significant strides forward versus the Euro despite a weaker-than-expected report on the housing market. UK house prices rose at the slowest pace this year in June as the Bank of England raised interest rates to the highest level in six years to 5.75%. However, the Pound remained resilient in spite of the report and even made some gains amid news that one of China's state owned banks bought a 3.1% stake in Barclays plc. In addition, the positive sentiment surrounding the Pound has been bolstered on strong speculation that the Bank of England will lift UK interest rates to 6.0% as early as next month to offset the risks of inflation. In terms of economic data, the focus this morning will fall on a report from the Confederation of British Industry, who are expected to report strong numbers in the quarterly trends survey for the second quarter.

Data Released 24th July

UK 11:00 CBI Quarterly Trends Survey (Q2)

EU 09:00 Flash PMI - Manufacturing (July)

EU 09:00 Flash PMI - Services (July)

EU 10:00 Industrial Orders (May)

U.S 15:00 Richmond Fed Survey (July)

written by Adam Solomon

The dramatic appreciation of the Pound continued yesterday as the UK currency rallied to a fresh 26-year against the Dollar and also rose 0.4% versus the Euro following a stronger-than-expected report on UK inflation. Consumer prices increased 2.4% year-on-year in June, which was the lowest in eight months, after gaining 2.5% in May but initial expectations had led some investors to price in a more substantial fall towards 2.3%. The Bank of England have raised the benchmark lending rate on five occasions since August last year, taking interest rates to the highest level in six years at 5.75% in order to bring inflation back towards the 2.0% target. However, the price of crude oil has increased 14% from the start of June and is holding above $70 a barrel, the highest price in almost a year. In addition, a separate gauge of the report showed that the retail price index, which includes mortgage payments, rose 4.4% in June compared with 4.3% the previous month and suggests that the Bank of England will need to continue raising interest rates in the near-term. As a result, the Pound has strengthened to trade above 2.0500 against the Dollar this morning and has also risen well above 1.4800 versus the Euro ahead of the minutes from the Bank of England's last policy meeting.

The Euro failed to capitalise on the sustained Dollar weakness yesterday and also fell significantly against the Pound as German investor confidence fell by the most in 10 months in July. The ZEW Centre for European Economic Research said its index of investor expectations fell to a reading of 10.4 this month, the lowest level since March, as the Euro's dramatic appreciation against the Dollar weighs heavily on export growth. The single currency has recently rose to the strongest level on record against the U.S currency and concerns are growing within the ECB that growth in Euro-zone exports, which has propelled the economy to the fastest pace of expansion since 2000, will continue to decline. In addition, rising oil prices and credit costs are squeezing producer prices and that may prompt the ECB to raise borrowing costs beyond 4.0% in order to contain inflation.

The Dollar dropped to a fresh 26-year low against the Pound yesterday and investors are anticipating further losses in the near-term amid a mixture of sub-par U.S economic data and hawkish sentiment from the Bank of England. The decline of the Dollar continued to gather momentum yesterday as the U.S currency fell to 2.0500 versus the Pound despite robust growth in the manufacturing sector as factory production rose above initial forecasts. Elsewhere, the headline TICs numbers also exceeded expectations on a record inflow of foreign investment in May, which supplements the surprising rise in the U.S trade deficit over the same period. Nevertheless, the Dollar failed to find any support as a report on producer prices showed that factory-gate inflation slowed in the month of June, reaffirming suggestions that the Federal Reserve can hold rates for the remainder of the year. The report may provide an insight in the consumer price index later today, which is also expected to remain relatively soft last month.

Data Released 18th July

UK 09:30 Claimant Count Unemployment (June)

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

UK 09:30 BoE MPC Minutes July 4th/5th Meeting

EU 10:00 Trade Balance (May)

U.S 13:30 Real Earnings (June)

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

U.S 13:30 Housing Starts (June)

written by Adam Solomon

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

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

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

Data Released 17th July

UK 09:30 Consumer Price Index (June)

- Retail Price Index

GER 10:00 ZEW Expectations Balance (July)

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

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

U.S 14:15 Industrial Production (June)

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

written by Adam Solomon

The rapid and sustained decline of the Dollar reached fever pitch last week as the U.S currency fell to a fresh 26-year low against the Pound while also falling to weakest level on record versus the Euro amid a host of negative economic reports. On Friday, a report from the Commerce Department showed that U.S retail sales fell by more than anticipated last month as the worst slump in the housing sector for 16-years eroded demand. Sales dropped 0.9% on the month in June, the most in over 2 years, following a revised 1.5% increase in May. U.S economic expansion has been quite overly reliant on consumer spending over the past year considering the sustained downturn in housing and factory production. The focus this week is likely to fall on a testimony from the chairman of the Federal Reserve, Ben Bernanke, who is due to address both houses of Congress on Wednesday and Thursday. The tone and language used in the statement is likely to centre around the consequences of the slump in housing and the implications on wider growth prospects. In terms of economic data, Dollar sentiment may be further compromised this afternoon following the release of the Empire state index, which is expected to show that manufacturing in the New York region slowed this month.

The Euro rose to the highest level on record against the Dollar last week but remained fairly muted versus the Pound despite an unexpected upward revision in European economic growth. The economy surged to 3.1% from this stage last year following increased business investment and strong export growth as sales aboard were also revised up to 0.8% from 0.3% in the preliminary estimates. Growing concerns from the a number of ECB policy makers has been the effects of a strong Euro on demand for European based goods as export growth propelled the economy to expand at the fastest pace in seven years. In terms of economic data, there is a sparse supply of reports released in the Euro region this week with the focus falling on the German ZEW expectations balance on Tuesday.

The Pound continued to surge forward against the Dollar last week and also remained fairly strong versus the Euro amid increased speculation that UK interest rates would rise to 6.0% by the end of the year. In addition, recent economic reports have fuelled concerns that the Bank of England will need to continue raising borrowing costs as factory-gate inflation continues to accelerate while the latest round of housing data showed that prices rose beyond expectations. Therefore in terms of economic data, the markets will be paying particular attention to the CPI report tomorrow, which is expected to show that UK consumer price inflation probably fell to the lowest level since May 2006 last month. Consumer prices may rise just 2.3% from a year earlier, the second consecutive decline in two months and show that the Bank of England are successfully bringing inflation back towards the 2.0% target following five interest rate hikes in under a year.

Data Released 16th July

UK 09:30 DCLG House Prices (May)

EU 10:00 Final HICP (June)

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

written by Adam Solomon

The Pound came under some pressure in early trade yesterday, falling sharply against the Euro and also dropping 0.2% versus the Dollar following a disappointing report on the UK property market. The Royal Institution of Chartered Surveyors said that house prices rose at the slowest pace in almost 18-months in June as higher interest rates discouraged first time buyers and weighed heavily on household income. The number of surveyors reporting higher home values throughout Britain outnumbered those showing declines by just 10.6% last month, which represents the lowest reading since January 2006. The Bank of England have raised UK borrowing costs to the highest level in six years with five consecutive rate hikes over the past eleven months in order to rein in consumer price inflation. In a speech this week, a member of the BoE's monetary policy committee, Andrew Sentence, said that growth in the property market and consumer spending may suffer from an economic slowdown after house prices rose by more than 10% over the past year alone. Sentence was one of the four policy makers to actively recommend a rate hike in June prior to this months quarter-point increase as inflation has remained above the 2.0% target for over a year.

The positive momentum surrounding the Euro continued yesterday as the single currency rallied 0.4% against the Pound and also rose to fresh record high versus the U.S Dollar following a host of positive economic reports. The fresh impetus for the Euro began with an unexpected upward revision in European gross domestic product as growth in the economy surged to 3.1% from the this stage in 2006. Following a consistent improvement in business investment and strong export growth, the economy has outperformed initial forecasts in the first quarter. Sales abroad were also revised up to 0.8% from 0.3% in the preliminary estimates, which shows the Euro's dramatic appreciation is doing little to quell demand for Euro-zone exports. The report will fuel speculation that the European Central Bank has the scope to continue raising interest rates although upside risks to price pressures seem fairly muted. Elsewhere, the Euro received a further boost as a separate report on factory activity showed that growth in industrial production continued to accelerate in May.

The Dollar continued to decline heavily against the Euro yesterday, closing towards 1.3800 versus the single currency but made modest gains versus the Pound as equity and bond markets regained some stability following the recent turmoil surrounding subprime mortgage defaults. Nevertheless, the latest round of economic reports continued to weigh on Dollar sentiment as the U.S trade balance showed that the deficit in goods in services widening in May. Following a reported jump in oil prices, the cost of imported goods outpaced record export growth as the gap in trade increased 2.3% to $60 billion. In addition, the Dollar may continue to decline this afternoon as a report on U.S retail growth is expected to show that sales probably fell in June following the biggest gain in over a year the previous month.

Data Released 13th July

U.S 13:30 Retail Sales (June)

U.S 13:30 Export Prices (June)

- Import Prices

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

U.S 15:00 Business Inventories (May)

written by Adam Solomon

The positive momentum surrounding the Pound continued yesterday as the UK currency rose to yet another 26-year high against the Dollar and looks to set to continue making gains amid increased speculation that UK interest rates will rise to 6.0% by the end of the year. Despite the fundamental lack of economic data, the Pound rose a further 0.4% against the Dollar and remained largely unchanged versus the Euro by the close of trading last night. In terms of economic data, the Pound may receive a further boost this morning ahead of the RICS house price balance, which is expected to show that prices remained fairly elevated in June. The Bank of England have raised UK interest rates to the highest level since 2001 over the past 11-months but recent surveys suggest that house price inflation continues to accelerate. Elsewhere, the BCC quarterly manufacturing survey is expected to show that growth in the sector accelerated in the three months to June although the overwhelming strength of the Pound threatens the pace of UK exports.

The Euro reached a record high against the Dollar on Tuesday and that trend looked set to continue yesterday following a particularly hawkish rhetoric from an executive board member of the ECB's governing council. Jurgen Stark gave a speech in Frankfurt where he reiterated that the Euros 10% appreciation against the Dollar this year reflects the overall strength of the Euro-zone economy. His comments seemed to suggest that policy makers were concerned over the incredible strength of the single currency and the subdued effect that it would have on European exports. Sales abroad has accounted for the fastest pace of economic growth in seven years and recent reports have indicated that growth in Euro-zone exports is fairly muted. Nevertheless, the Euro rallied against the Dollar and remained largely unchanged versus the Pound ahead of a host of significant economic reports. The ECB monthly bulletin is expected to mirror the tone of the press conference last week while Euro-zone industrial production may expand 1.0% in May.

The Dollar has been under intense pressure against the majors this week, dropping to the lowest level in over a quarter of a century versus the Pound and falling to a record low against the Euro amid a host of negative economic data. In addition, recent reports have indicated that inflation risks to remain to the upside but the slump in the property market is expected to keep U.S interest rates on hold at 5.25% for the remainder of the year. The Dollar may come under further pressure this afternoon and extend the recent losses against both the Euro and the Pound following the release of U.S trade data. The deficit in goods and services may widen to $60 billion in May despite the overwhelming weakness of the U.S currency, which should provide a boost to exports.


Data Released 11th July

UK 11:00 BCC Quarterly Manufacturing Survey (Q2)

EU 09:00 ECB Monthly Bulletin Published

EU 10:00 Industrial Production (May)

EU 10:00 Final GDP (Q1)

U.S 13:30 Initial Jobless Claims (w/e 7th July)

U.S 13:30 Trade Balance (May)

written by Adam Solomon

The Pound continued to make substantial gains against the Dollar yesterday, rising 0.6% on the session to close last night at the strongest level in over 26-years. Earlier in the day, the positive sentiment surrounding the Pound continued as UK retail sales increased by the most in three months in June, proving that consumer spending is resisting rising interest rates. The report from the British Retail Consortium showed that sales rose 3.0% from this stage last year following a 1.8% increase in May and it can be argued that consumer spending is buoyant in anticipation of further rate hikes to come. The Bank of England's monetary policy committee have elected to raise borrowing costs on five separate occasions in under a year and have recently indicated that another quarter-point rise may be necessary over the coming months.

Consumer price inflation, which accelerated to the fastest pace in a decade in April, has been showing signs of moderation but policy makers feel that interest rates will need to rise once more in order for inflation to come back towards the 2.0% target. The recent speculation surrounding UK monetary policy combined with sustained Dollar weakness has sent the Pound crashing through the $2.0200 level and to the strongest level of exchange since June 1981. Therefore, Dollar buyers would be well placed to take advantage of the current rate or at least place a stop order above the $2.00 level to ensure against a reversal.

The Dollar also slumped against the Euro yesterday, dropping to the lowest level on record versus the single currency as profit warnings in the U.S heightened concerns over the housing market, subprime mortgage defaults and consumer sentiment. The well documented slump in the U.S property market has been the primary factor for a slowdown in the economy. Therefore, confidence in the U.S currency was further undermined yesterday as an announcement from Standard & Poor, the credit rating agency, said that it may be cutting ratings on almost $12 billion on bonds backed by subprime mortgages. The news sparked a mass sell off of securities on concerns that the rating cut will have broader implications for U.S and global markets. Elsewhere, even a speech from the chairman of the Federal Reserve, Ben Bernanke, failed to provide a boost to the ailing U.S currency as he failed to give any direction on the course of U.S interest rates.

Data Released 11th July

(Nothing of significance)

written by Adam Solomon

The Pound rose modestly against the Dollar yesterday and also made significant gains versus the Euro following a report on producer prices, which showed that UK factory-gate inflation rose for a seventh consecutive month. One of the primary concerns within the Bank of England's monetary policy committee has been the consistent increase in producer prices, which are thusly feeding through to the already elevated inflationary pressures. Output prices climbed 0.2% last month following robust growth in May after a significant rebound in the price of oil and higher food costs. The report will only serve to increase speculation that the Bank of England will need to raise UK interest rates to 6.0% by the end of the year in order to bring inflation back towards target. Elsewhere, a speech from MPC member, David Blanchflower, did little to dampen Sterling sentiment as he stated at a conference in Berlin that growth in personal income is currently showing few signs of stoking inflation. His comments yesterday will provide an insight into the minutes from the Bank of England's last policy meeting after Blanchflower opposed a rate hike in June. In terms of economic data, the focus this morning will fall on a report from the British Retail Consortium, which is expected to show that UK retail sales remained strong last month.

The Euro remained largely unchanged against the Dollar yesterday but fell a further 0.3% versus the Pound despite a host of positive economic reports coming out of Europe's largest economy. The German trade surplus increased to 17.5 billion in May following an unexpected drop in Euro-zone exports, which provides an indication that growth in the economy may have peaked. Following the Euro's 10% appreciation against the Dollar this year combined with slowing global economic growth, demand for German based goods may be slowing, which threatens to curtail the fastest pace of expansion in nearly seven years. Nevertheless, a larger drop in German imports drove the overall trade surplus higher while a separate report on industrial production fell in line with initial expectations.

Following a sparse supply of economic data, the Dollar fell 0.2% against the Pound by the close of trading last night and thusly failed to consolidate on Friday's robust non-farm payrolls numbers. Dollar sentiment has been further hampered by renewed speculation that the Federal Reserve will keep U.S interest rates on hold for the remainder of the year ahead of today's speech by Federal Reserve Chairman Ben Bernanke. The topic of the conference should centre around inflation and with oil prices holding solidly above $70 a barrel, the risks to price stability seem to clearly skewed to the upside. Depending on the tone and language used in the statement, the Dollar may find some support as Benernake carefully emphasises that inflation remains the single biggest concern to policy makers in cutting rates this year. A recent survey on the U.S economy has reflected that sentiment as growth will continue to gather momentum this year without stoking inflation.

Data Released 10th July

U.S 15:00 Wholesale Inventories (May)

written by Adam Solomon

Following on from last week, the Pound rose to the highest level in 26-years against the ailing U.S Dollar as the Bank of England raised UK interest rates for the fifth time in under a year and to the highest level since 2001. The nine-strong monetary policy committee, led by the governor of the Bank of England, Mervyn King, elected to lift rates to 5.75% in order to bring inflation back towards the 2.0% target. The Pound rallied strongly in the build up to the announcement, rising to the strongest level since June 1981 on speculation that the MPC would need to lift rates once more before the turn of the year. An index of factory-gate inflation stayed close to the highest level since 1999 last month while recent surveys suggest that house price growth will continue to expand at a robust pace. Therefore, the focus this morning will fall largely on the latest round of producer price inflation, which is expected to show that output prices rose to annual rate of 2.6% last month. Elsewhere, the UK global trade balance may show that the deficit in goods and services narrowed from £6.3 billion in April to £6.00 billion in May.

The Euro rose to a near record high against the Dollar last week and also made gains versus the Pound despite the ECB's decision to leave European interest rates on hold at 4.0%. However, in the accompanying press conference, the chairman of the European Central Bank, Jean-Claude Trichet, signalled that the governing council are prepared to raise the benchmark lending rate for the ninth time in under two years with the next likely rise coming in September. The tone and language used in the statement seemed to suggest that the Central Bank remains adamant that borrowing costs are still low enough to propel economic growth while policy makers must "act in a firm and timely manner to ensure that risks to price stability do not materialize." The hawkish stance from the ECB can be derived from the renewed confidence in the German economy and a host of economic reports this week will underline the performance of Europe's largest economy. The Euro has remained firm against the majors this morning despite a surprisingly negative report on German export growth, which unexpectedly fell in May. Sales abroad declined 0.7% from a revised 0.9% rise in April and the report is just the latest indication that growth in the German economy may have peaked.

Following on from last Friday, the Dollar had found some support against the majors and managed to claw back some significant gains against both the Euro and the Pound following the release of the monthly U.S job report. Employers added 132,000 workers to payrolls in June while average hourly earnings accelerated and unemployment held near the lowest level in six years. The increase in employment followed a larger than expected gain in May and the report provides an indication that the U.S job market will continue to support economic growth amid the worst slump in housing for over 17-years. Growth in personal income is boosting consumer spending in the wake of near-record fuel prices and falling home values while host of retail data this week is expected to underline that sentiment. U.S retail sales is expected to show that the annual pace of growth accelerated from 4.5% in May to 5.2% in June as the report provides an insight into the pace of personal consumption in the second quarter.

Data Released 9th July

UK 09:30 Producer Price Index (June)

UK 09:30 Global Trade Balance (May)

GER 11:00 Industrial Production (May)

written by Adam Solomon

The Pound declined against the Dollar and the Euro yesterday as Bank of England policy makers raised UK interest rates for the fifth time in 11-months and to the highest level in six years at 5.75%. The nine-strong monetary policy committee voted that a further 25 basis point hike would be necessary in order to curb inflation, which has stayed way above the 2.0% target and increases the chances of a further quarter-point rise later in the year. UK inflation has risen to the highest level in a decade this year while robust growth in the housing market combined with strong consumer spending has powered the fastest economic growth in three years. In the aftermath of the rate announcement, the governor of the Bank of England, Mervyn King, released a statement that said "risks to price stability still lie to the upside." As a result, the hawkish sentiment from policy makers has raised speculation that UK interest rates will rise to 6% by the end of the year on concerns over rising factory-gate inflation and house price growth. Nevertheless, the Pound declined against the Euro in the aftermath of the announcement and may fall against the Dollar for the second consecutive day amid the release of the monthly U.S job report. Euro and Dollar buyers would be well placed to take advantage of the current rate before further downside movement over the course of the day.

The Euro managed to consolidate on the recent gains made against the Dollar and also rose 0.2% versus the Pound despite the ECB's decision to hold interest rates at 4.0%. The outcome of the meeting was widely anticipated but the focus would fall on the accompanying press conference where the chairman of the ECB, Jean-Claude Trichet, gave a strong indication that interest rates may need to rise further in September to prevent economic growth from fuelling inflation. A number of members from the ECB's governing council have recently stated at the current benchmark lending rate was still low enough to boost economic expansion. The chairman has also been criticised of late for placing too much emphasis on the impact of money supply growth as a gauge of inflationary pressures. In the statement yesterday, Trichet failed to strike the sort of hawkish rhetoric that some investors were anticipating and omitted the term "strong vigilance" from the press conference. The specific tone and language used by the chairman has been the same in each of the prior months to a rate increase and therefore, we expect the ECB to keep rates steady until September.

The Dollar made unexpected gains against the Pound yesterday as growth in the U.S service sector surpassed initial forecasts and accelerated to the fastest pace in over a year last month. The ISM index of non-manufacturing rose to a reading of 60.7 in June from 59.7 the previous month and suggests that the U.S economy will continue to grow at a moderate pace this year. Growth in the service sector, which accounts for nearly 90% of the economy, is supplementing the worst slump in housing for almost 20 years and may keep the Federal Reserve from cutting interest rates over the next 6-months. Elsewhere, the Dollar managed to sustain the early momentum as a separate report showed that ADP employer services added more workers to payrolls than expected in June. The private report, which provides an insight into the non-farm payroll numbers this afternoon, showed that companies added 150,000 new workers to payrolls last month, the biggest monthly increase in seven months. The Dollar may continue to make gains this afternoon ahead of the monthly U.S job report, which is expected to show that wage growth accelerated while the unemployment rate remained unchanged at 4.5%.

Data Released 6th July

UK 09:30 Industrial Production (May)

- Manufacturing Output

GER 11:00 Manufacturing Orders (May)

U.S 13:30 Non Farm Payrolls (June)

- Unemployment Rate

- Average Hourly Earnings

written by Adam Solomon

The Pound remained largely unchanged against the Dollar yesterday, holding steady around the $2.01 level while falling a further 0.1% versus the Euro ahead of the Bank of England interest rate announcement this lunchtime. The monetary policy committee are widely expected to raise UK interest rates by a further 25 basis points in order to rein in inflation, which has recently peaked at the highest level in 10-years. Recent hawkish statements from the a number of policy makers including the governor of the BoE, Mervyn King, have virtually assured investors that rates will rise to a fresh six-year at 5.75%. In addition, that sentiment was further emphasised yesterday as the UK's biggest mortgage provider said that house prices throughout Britain rose at a faster pace than previously estimated in June. While elsewhere, the CIPS services index rose to a reading of 57.7 last month while the inflation component increased from a 15-month low. The nine-strong committee was split 5-4 in favour of holding rates last month with the governor in the minority for the first time in over two years. Therefore, it will be interesting to witness the outcome of the decision and we can expect the Pound to remain elevated if the MPC raise rates for the fifth time in under a year.

The Euro made significant gains against the Pound yesterday, closing under 1.4800 for the first time this week while we also approach a record level versus the ailing U.S Dollar. In terms of economic data, the single currency received a timely boost yesterday as the Purchasing Managers' index showed that growth in the Euro-zone service sector accelerated to the fastest pace in a year in June. The PMI index rose to a reading of 58.3 last month from 57.3 in May as unemployment across the 13 nations sharing the Euro dropped to the lowest level on record. The focus today will fall largely on the ECB interest rate announcement and press conference where policy makers are widely expected to keep rates unchanged in July. The European economy has been expanding at the fastest pace in six years, which has seen the Central Bank lift rates on eight separate occasions since late 2005. However, given the somewhat over reliance of the influence of money supply growth, the ECB are expected to wait for a clearer indication that economic growth is fanning inflation. In addition, the Euro may make further gains against the majors if the chairman, Jean-Claude Trichet, indicates that inflationary pressures remain to the upside and "strong vigilance" will be required over the coming months.

The Dollar plummeted to a fresh 26-year low against the Pound yesterday, peaking at 2.0200 in early trading while the U.S currency also fell considerably versus the Euro following the distinct lack of U.S economic data. The negative sentiment surrounding the Dollar may continue this afternoon, particularly if the Bank of England lift interest rates at midday. Nevertheless, the latest round of economic data may show that growth in U.S service industries probably held close to the fastest pace in over a year last month. The ISM index of non-manufacturing companies may fall modestly to a reading of 58.0 from 59.7 the previous month with a figure above 50 indicating expansion. Elsewhere, the ADP employment report will be watched closely and may provide an insight into the nonfarm payrolls numbers on Friday, which may show that the unemployment rate held steady at 4.5%.

Data Released 5th July

UK 12:00 BoE Rate Announcement

EU 12:45 ECB Rate Announcement

EU 13:30 ECB Press Conference

U.S 13:15 ADP Employment Report

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

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

written by Adam Solomon

The Pound advanced to a fresh 26-year high against the Dollar yesterday, trading as high as $2.0207 on expectations that the Bank of England are poised to raise UK interest rates tomorrow and signal further increases over the coming months. Elsewhere, the Pound stood 0.1% higher against the Euro by the close of trading last night as investors speculate that policy makers will lift rates to 6.00% by year-end as inflationary pressures remain to the upside. The Pound has gained 3.1% against the Dollar this year with the support for the UK currency based largely on the divergence in interest rate outlooks between the UK and the U.S. The monetary policy committee has raised rates twice this year while the Federal Reserve have left borrowing costs on hold at 5.25%, which has sent the Pound to the highest level against the Dollar since June 1981. In terms of economic data, UK house prices accelerated faster than expected in June as the average cost of home rose 0.4% following a 0.3% increase in May. The report will only fuel expectations of an interest rate hike tomorrow as growth in the housing market continues to gather momentum despite rising borrowing costs. Elsewhere, the Pound may continue to make gains against the Dollar and the Euro this morning as the CIPS services survey may show that growth in the sector continued to expand.

The Euro fell modestly against the majors yesterday dropping 0.1% versus both the Pound and the Dollar as a spate of economic reports came out largely in line with initial forecasts. Euro-zone unemployment remained largely unchanged from the previous month as the jobless rate held steady at 7.1% while a gauge of producer price inflation showed that prices rose 0.3% on the month in May. The single currency may find some support this morning as the Purchasing Managers' index on Euro-zone service sector growth is expected to follow the recent manufacturing survey. Growth in services, which accounts for the largest proportion of the economy, is forecast to accelerate to a reading of 58.3 from 57.3 in April with a figure above 50 indication expansion. However, the Euro may struggle to make any further gains as a separate report may show that European retail sales failed to advance in May as rising interest rates and higher fuel prices threatens the pace of consumer spending.

The Dollar plummeted to a fresh 26-year low against the Pound yesterday as U.S durable goods orders fell less than anticipated in May with orders falling 0.5% from April. The report from the Commerce department reiterated that a pick-up in business investment will be necessary over the coming months in order to help the economy supplement the lingering slump in the property market. Elsewhere, a separate report showed that Pending home sales of previously owned properties unexpectedly declined in May as first-time buyers struggle with higher lending rates. The index of purchase agreements dropped a further 3.5% to a reading of 97.7, which represents the lowest level in over five years. The report follows recent data that suggests the slump in housing, which threatens to curtail the pace of economic expansion, is showing few signs of abating going into the third quarter. Dollar buyers would well placed to work a moving a stop order in the market to product against a retracement back towards the $2.00 level.

Data Released 4th July

UK 09:30 CIPS Services Survey (June)

EU 09:00 PMI Services (June)

E.U 10:00 Retail Sales (May)

written by Adam Solomon

The Pound lost ground against the Euro yesterday dropping 0.4% by the close of trading last night although the UK currency rose for the sixth consecutive day versus the Dollar and reached the highest level 26-years. Growth in the UK manufacturing sector unexpectedly slowed in June, which suggests that higher interest rates and a strong Pound are beginning to weigh on demand for UK exports. The CIPS survey showed that growth in the sector surprisingly slipped to a reading of 54.3 in June from a revised 54.7 the previous month and although a figure above 50 indicates expansion, the pace of growth in factory production seems to be slowing. The Bank of England have recently expressed concerns that faster economic growth is likely to encourage companies to continue raising prices and thusly fuelling the current inflationary pressures. Therefore, the Bank of England are widely expected to lift UK interest rates for the fifth time since August and increase the pressure on manufacturers, who are already struggling with the Pound's 9% appreciation against the Dollar over the past year. Dollar buyers would well placed to take advantage of the current rate and will be able to achieve the most attractive rate of exchange since September 1981.

The Euro rose to within a whisker of the April record high against the Dollar yesterday and also made robust gains versus the Pound as manufacturing growth in the Euro-zone accelerated by more than initially expected in June. The Purchasing Managers' index of factory output rose to a reading of 55.6 last month and underpinned expectations that the European Central Bank will raise interest rates beyond 4.00%. Over the past five years, the global economy has expanded at the fastest pace in over 30-years and demand from the U.S has heavily boosted European exports, which have driven economic growth to the quickest pace since 2000. Elsewhere, the ECB are expected to continue monetary tightening as the recent EC sentiment index showed that business and consumer confidence remained close to a six-year high this month. In addition, the Euro may continue making gains against the majors this morning as a report on the labour market is expected to show that unemployment fell to a fresh six-year low in May.

The U.S Dollar fell against most leading currencies yesterday, dropping to the lowest level in over a quarter of a century versus the Pound amid speculation that U.S interest rates will remain on hold throughout the remainder of the year. The Dollar declined heavily despite a report from the Institute of Supply Management, which showed that U.S manufacturing growth accelerated to the highest level in over a year in June. The ISM index rose to a reading of 56.0 from 55.0 in May but the recent upturn in manufacturing is offset by concerns over slowing consumer spending and prolonged weakness in the housing market. The Dollar fell considerably against both the Euro and the Pound yesterday and that trend may continue this afternoon following a report from the Commerce department. U.S durable goods orders are expected to fall for the first time in four months in May with bookings dropping a massive 1.2% following a 0.3% rise in April.

Data Released 3rd July

EU 10:00 Producer Price Index (May)

EU 10:00 Unemployment Rate (May)

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

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

written by Adam Solomon

Following on from last week, the Pound rose significantly against the Dollar and managed to consolidate well above the $2.00 level on Friday following a barrage of strong economic reports that seemed to increase the chance of an interest rate hike this week. The final estimate of UK gross domestic product showed that the economy grew faster than anticipated in the first quarter following sustained growth in the service sector and increased government spending. The annual pace of economic growth rose 3% from this stage in 2006, which was slightly ahead of expectations and provides an indication that higher interest rates have yet to cool the economy. The focus this week will fall largely on the Bank of England rate announcement this Thursday where the monetary policy committee are likely to increase borrowing costs to a fresh six-year high. The governor of the BoE, Mervyn King, was narrowly outvoted for the first time in over two years for a June increase and following a number of hawkish statements over the past month, policy makers may well lift rates for the fifth time in eleven months. As a direct result of the speculation surrounding a July rate hike, the Pound has risen above the $2.01 level this morning as we approach the highest level in 26-years versus the U.S currency. Dollar 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 an adverse move should the MPC hold rates again this month.

The Euro managed to hold firm against the Pound on Friday and rose to a 3-week high versus the Dollar as the EC sentiment index showed that European business and consumer confidence stayed close to a six-year high in June. The labour market has strengthened significantly over the past year with unemployment currently at a record low while global growth has spurred European exports to drive the economy to the fastest pace of expansion since 2000. The index of sentiment eased slightly to a reading of 111.7 in June from a revised 112.1 the previous month while inflation stayed under the ECB's 2.0% ceiling for another month. As a result, the European Central Bank are widely expected to hold interest rates at 4.00% on Thursday but we will be paying close attention to the accompanying statement. The tone and language used by the chairman of the ECB will be heavily scrutinized in the aftermath of the announcement in order to gauge the likelihood of further monetary tightening over the coming months. In terms of economic data, the Euro may remain firm against the majors this morning as the Purchasing Managers' index is expected to show that growth in European manufacturing accelerated in June.

The Dollar continued to decline against the Pound last week and also fell considerably versus the Euro following a barren run of economic data. U.S consumer spending rose less than forecast in May while the Federal Reserve's preferred gauge of inflation increased at the slowest pace since March 2004. Personal spending rose just 0.5% from the previous month while core prices barely increased, which suggests that U.S inflation will continue to moderate and increase speculation that the next likely move from the Fed will be a cut in interest rates towards the end of the year. In terms of economic data, the Dollar may struggle to rebound against the majors as June's non-farm payrolls report takes centre stage. The monthly U.S job report is expected to show that the economy added 118,000 new jobs to payrolls in June, which is slightly below the average for the past five months while the unemployment rate may stay unchanged at 4.5%.

Data Released 2nd July

UK 09:30 CIPS Manufacturing Survey (June)

EU 09:00 PMI Manufacturing (June)

U.S 15:00 ISM Manufacturing (June)

written by Adam Solomon