The Dollar rallys against the majors as U.S consumer confidence unexpectedly rose in July despite higher petrol prices and rising interest rates


By on July 26th, 2006.
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The Dollar has staged an unlikely rally against the Pound this week and we saw further gains yesterday following the release of some key data in the U.S with Consumer Confidence unexpectedly rising to a three month high in July. It was widely anticipated that confidence amongst the American consumer would decline to a reading of 104.7 this month but the index actually rose to 106.5 despite the obvious decline in U.S home sales on spending. It seems evident that consumer confidence is currently being fuelled by a strong labour market and gains in personal income, which have thus far supplemented rising petrol prices and higher interest rates. In addition, existing home sales in the States fell by less than expected in the figures for June, falling to an annual rate of $6.62 million, which was slightly above forecast and the predicted decline of the U.S housing market is not supported in the recent surveys. The Dollar made significant gains on the release of the strong data as we closed around 1.8400 against the Pound with investor’s raising expectations of a further tightening of U.S interest rates in August.

The Pound has been gaining in recent weeks on speculation that the Bank of England will finally lift UK interest rates for the first time in nearly 12 months as the economy grows at the fastest pace in two years and inflation continues to show signs of accelerating beyond the government’s 2% target. However, due to a sparse supply of data released this week the Pound has relinquished some of the recent gains, particularly against the Euro, but the CBI industrial trends survey is released this morning and it is widely expected to remain at a high level as the recovery in UK manufacturing continues to show signs of growth.

The Euro has been making steady gains against Sterling after we failed to break the resistance level at 1.4675 earlier this week and we may see further strength this morning with the release of the German Ifo index for July. Business confidence in Europe’s largest economy rose to the highest level in 15-years in June and although we expect to see a modest decline to 105.9 this month the Ifo will still point to robust growth in German GDP in the second quarter. In addition, Retail Sales in Germany is widely expected to show an increase in sales of upto 3.0% in June as the country reaps the benefits of staging the World Cup this summer.

Data Released 26th July

UK 11:00 CBI Monthly Industrial Trends (July)

U.S 19:00 Beige Book

GER 09:00 Ifo Business Climate Index (July)

GER 10:00 Retail Sales (June)

written by Adam Solomon

Related posts:

  1. U.S Consumer Confidence expected to decline following higher energy costs and rising fuel prices
  2. the Dollar gains on speculation the Fed will raise interest rates after higher inflation and rising producer prices
  3. The Dollar makes further gains amid speculation that the Fed will need to continue raising U.S interest rates in order to cope with rising prices
  4. Higher interest rates are beginning to wane on U.S consumer sentiment with housing starts expected to decline further in May
  5. UK Inflation acclerates to 2.2% in May due to higher energy costs and the surging price of petrol

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