Daily Insight

The Pound plunged against the Dollar yesterday, dropping through the lowest level in 21 months while the UK currency also registered sharp intraday losses versus the Euro after an industry report from the Royal Institution of Chartered Surveyors showed a further slump in U.K house prices.

The credit crunch has brought the housing market to a virtual standstill while the escalating threat of a recession has seen the Pound fall under 1.9000 versus the Dollar for the first time in nearly two years as speculation of a UK interest rate cut continues to weigh on sentiment.

Although the recent trend of weakening economic data continues to dominate, a separate report from the Office of National Statistics yesterday showed that UK inflation accelerated to well in excess of initial estimates, rising to 4.4% year on year in July.

The annual pace of consumer prices breached the government’s upper 3% limit for the third consecutive month and rose to the highest level since comparable records began in 1986 while the report also showed that prices exceeded initial forecasts and posed a greater dilemma to policy makers.

The dwindling sentiment surrounding the Pound is likely to continue over the coming weeks and the focus this morning will fall on the UK claimant count with the unemployment rate expected to increase to 5.3% and highlight the worsening labour market conditions that will contribute to an economic slump.

Elsewhere, the Bank of England’s quarterly inflation report is expected to mirror the tone of the CPI numbers yesterday but the probability of a rate increase is remote as policy makers address the current risks to growth and prepare to lower borrowing costs significantly over the next year.

The Dollar failed to extend its upside momentum against the Euro yesterday, snapping five successive days of gains amid suggestions that the U.S currency’s 4.6% appreciation has happened too fast to sustain the move.

The escalating decline in oil prices was enough to see the Dollar continue to make gains versus the struggling Pound and a report on the U.S trade balance also provided some optimism on the future outlook for the economy.

The gap in goods and services unexpectedly narrowed in June as the biggest jump in exports in over four years offset the record jump in fuel imports in May with the deficit shrinking 4.1% in June.

Data Released 13th August

U.K 00:30 RICS House Price Survey (August)

U.K 09:30 Claimant Count / Unemployment Rate (July)

- Unemployment Rate ILP Basis
- Average Earnings (June)

U.K 10:30 BoE Quarterly Inflation Report (August)

EU 10:00 Industrial Production (June)

U.S 13:30 Retail Sales (July)

- Core Retail Sales

U.S 13:30 Import Prices (July)

- Export Prices (July)

U.S 15:00 Business Inventories (June)

written by Adam Solomon