Daily Insight

Following on from last week, the Pound took advantage of broad Euro weakness to consolidate above the 1.2500 level on Friday after an EU report showed that money supply into the Euro-zone gre less than anticipated in March.

The European Central Bank rely on the M3 index as a gauge of inflation and the 3 month moving average failed to match initial forecasts and provided some optimism that inflation may retreat.

The Euro has failed to resume the upside momentum against the Pound and Euro buyers are well placed to work a stop order in the market and take advantage of this unexpected rally.

The vulnerability in Sterling sentiment has been further exposed this morning as the UK currency declined following a report from the Nationwide Building Society.

House prices in Britain and Wales fell by the most in over three years in April with the average cost of a home falling 0.6% from the previous month as rising mortgage rates deterred home buyers.

The report follows news that UK gross domestic product only expanded 0.4% in the three months through March, the least since 2005, while the International Monetary Fund expect economic growth to stall to the slowest pace since 1992.

Rising consumer prices combined with tighter lending conditions and seen a month-on-month drop in retail sales that threatens to curtail the pace of the UK economy and that may lead to a further reduction in borrowing costs.

Despite a fundamental lack of European economic data released over the past week, the Euro has also paired significant losses versus the Dollar, falling to the lowest level in more than three weeks following mildly dovish comments from ECB members and declines in two second tier inflation indicators.

The unexpected drop in the M3 money supply index was greeted by a statement from ECB governing council member, Lorenzo Bini Smaghi, who noted that inflation in the region had reached an acceptable level.

In the last ECB press conference, the chairman Jean-Claude Trichet, acknowledged that "vigorous" M3 growth makes it almost impossible for the ECB to cut interest rates.

However, a softening in money supply has the potential to change the ECB's staunchly hawkish stance and lead to an eventual cut in European borrowing costs.

After flirting with a new record low at the beginning of the week, the revival in Dollar sentiment saw the U.S currency make gains against both the Pound and the Euro despite reports that new home sales had plummeted to the lowest level since October 1991.

Nevertheless, an unexpected rise in Durable goods orders combined with a drop in jobless claims helped the Dollar to a three week high versus the Euro by the close of trading on Friday.

However, reports on Friday showed that consumer confidence in the Michigan area plunged to a 26-year low and provided a poignant reminder of the dire outlook for the U.S economy.

Data Released 28th April

No Data Released

written by Adam Solomon