Daily Market Report 02/04/2013

The pound had its biggest quarterly drop against the dollar in more than four years as the economy’s contraction in the 4th quarter of 2012 continues to fuel concern of an unprecedented triple-dip recession. While we are trading roughly 2% higher than the low reached on March 12, this recovery might be short lived, as fundamentals remain weak in the U.K. The BoE announces their rate decision on Thursday, and they are expected to leave rates steady at 0.5% with no increase to their asset purchase program. This should lend some support to the pound.

Data this week is forecasted to show the recovery in the U.S. job market is perhaps not fast enough to prompt the Federal Reserve to reduce monetary stimulus. ADP job figures are due for release on Wednesday with Non-Farm Payroll figures due for release on Friday.

The euro remains near 4 month lows against the dollar and a month low against the pound as European markets re-open today after the Easter holidays. Markets continue to remain cautious over Cyprus and the implications of its rescue package for the rest of Europe’s troubled nations especially following the comments from Eurogroup President Jeroen Dijsselbloem last week who stated that the Cyprus rescue package represented a new template for future euro zone bailouts.

Cyprus announced over the weekend that large depositors would lose 60% of balances over €100,000, an amount well over the initially estimated 30% to 40%. Banks in the country reopened last Thursday to strict capital controls and limits on withdrawals.

As the economic downturn threatens price stability, central bank President Mario Draghi may deliver a more dovish policy statement at the rate decision scheduled for this Thursday, and we may see a growing number of ECB officials show a greater willingness to push the benchmark interest rate to a fresh record-low in an effort to steer the euro-area out of recession.

Manufacturing PMI figures from Italy, France, Germany and the euro zone as a whole all came in better than expected, however the data has done little to support the euro as fears over Cyprus continue to drive the euro lower this morning.

Key Announcements:

9.28am – GBP – Markit Manufacturing PMI (Mar): Expected to rise to 48.5.

9.30am – GBP – Mortgage Approvals (Feb): Expected to fall to 54,000.

10.00am – EUR – Unemployment Rate (Feb): Expected to increase to 12%.

12.00pm – EUR – German Consumer Price Index (Mar): Expected to fall to 1.4%.

14.00pm – USD – Factory Orders (Feb): Expected to rise to 2.9%.