Daily Market Report 01/10/2013

The US dollar weakened to a nine month low against the pound in early morning trade following the announcement of a partial US government shutdown.

As a result, nearly 800,000 federal employees have been placed on annual leave with all non-essential services shut down temporarily. This could potentially hinder growth in the fourth quarter for the US and thus we could see the Fed persevere with its current monetary stimulus programme for longer. 

The other factor lingering over the US dollar is that lawmakers still need to agree on raising the US debt ceiling to avoid a default after the 17th October, this could potentially also threaten the value of the US dollar if a default cannot be averted.

The pound continued to find support yesterday as mortgage approvals increased to the most since February 2008. The pound also continued to gain ahead of key data this week that is forecasted to reveal that the construction and service sectors all expanded in September, once again adding to signs of a recovery in the economy.

Although inflation in the euro zone fell from 1.1% in August to 1% in September, the euro did manage to draw support as reports emerged that several of Silvio Berlusconi’s political party were dissenting against Berlusconi’s decision to pull out of Enrico Letta’s coalition government.

Despite Canada reporting 0.6% growth in July, the Canadian dollar continued to weaken to fresh three year lows against the pound. 

The Australian dollar bounced off its three year resistance line to regain some ground against the pound, suggesting that current levels, for the time being anyway, could be as good as it gets for now. The Reserve Bank of Australia decided to keep interest rates at 2.5% and commented that the most recent cuts were still filtering through to the economy. 

Data this morning has revealed that UK manufacturing PMI fell slightly shy of expectations in September, producing a minor hiccup for the pounds recent strength. German unemployment increased to 6.9% but the unemployment rate in the euro zone fell to 12% for the month of August.

Key Announcements: 

13.58pm – USD – Markit Manufacturing PMI (Oct): Expected to come in at 52.8.

15.00pm – USD – Construction Spending (Aug): Expected to fall to 0.4%.

15.00pm – USD – ISM Manufacturing PMI (Sept): Expected to improve to 55.8.