Daily Market Report 05/07/2013

Thursday saw some dramatic and hugely significant movements for the pound despite the expectation of a relatively quiet day. Independence Day in the US meant that for one the dollar was not the key focus. The interest rate decisions from the UK and the euro zone were both due and once again no movement was expected from eithercentral bank in terms of interest rate movements and changes to their respective QE programs.

The Bank of England had only welcomed their new governor, Mark Carney, on Monday and thoughts that he would take some time to find his footings were quickly quashed. Carney surprised the markets by stating that interest rates in the UK would remain as they are for the near future despite some very encouraging economic growth.
This had an immediate impact on the pound losing ground against every other major currency. Specifically it lost 1.35% against the US dollar and 0.65% against the euro. The FTSE 100 rose sharply closing up over 3% for the day, the biggest one day move since November 2011.

This revelation from the Bank of England will no doubt have investors on their toes and thoughts that the Bank could release more unexpected data at future MPC meetings and maybe take a more flexible stance on the UK’s inflations targets could potentially put the pound on the back foot.  As stated above the chances of hiking interest rates are therefore reduced as is the possibility now of ending QE sooner.

In Europe, Mario Draghi’s comments following their own interest rate announcement also focused on the current interest rate stating that they will remain where they are or potentially move lower for an extended period. This news weakened the euro against other currencies.

These moves from the Bank of England and the ECB are certainly not in line with recent activity from the US where the Fed have stated that they will consider reducing their QE program before the end of the year and potentially increase their interest rates if its economy continues to improve and unemployment continues to fall.

As the week draws to a close the US non-farm payrolls data is now even more prevalent as the pound has already been tempted to breach support at 1.50. The unemployment in the US is forecast to fall to 7.5% but more importantly, if the non-farms data beats expectations today, pushing below 1.50 for the first time since March could be a possible.

Key Announcements:

10.00am – EUR – Factory Order (May): Expected to improve to 1.2%.

13.30pm – CAD – Unemployment Rate (Jun): Expected to remain at 7.1%

13.30pm – CAD – Net Change in Employment (Jun): Expected to show a fall to -2,500.

13.30PM – USD – Non-Farm Payrolls (Jun): Expected to show an additional 165,000 jobs added.

13.30pm – USD – Unemployment Rate (Jun): Expected to fall to 7.5%.