Daily Market Report 07/03/2013

The pound continued to fall yesterday ahead of today’s Bank of England monthly monetary policy meeting amid fears that the BoE may be looking to inject an additional £25bln to assist the ailing economy.

At the most recent minutes meeting, two further members of the monetary policy committee voted to increase the currency Quantitative Easing program to £400bln.  Official forecasts are for the current program to stay at £375bln, so a surprise expansion should cause the pound to weaken. Data from Halifax showed that house prices in the UK grew to 1.9% however this did nothing to alleviate the pressure on the pound.

Data released yesterday showed that the euro zone contracted as anticipated by 0.6% in the fourth quarter. Whilst moves against the pound were muted given today’s European Central Bank’s monetary policy meeting, the euro suffered a 0.5% fall against the US dollar. There is a concern amongst investors that ECB President Mario Draghi may signal intent to cut interest rates in the single bloc in his speech today. The political uncertainty in Italy still lingers over the euro as no further developments have been made regarding another election.

Amid all this uncertainty, the US dollar has strengthened further and remains as the third best performing currency of 2013.  The US dollar also drew strength from the ADP figures released yesterday, which showed an increase of 198,000 in employment in the US giving reason for the Federal Reserve to end stimulus sooner than initially planned. GBP/USD has started this morning trading below the important 1.50 level.

The other risk event from yesterday was that we saw the Bank of Canada hold interest rates at 1%. The Bank of Canada also indicated it won’t raise interest rates anytime soon with inflation slowing more than expected. The Canadian dollar weakened off the back of the data against its US counterpart however moves against the pound were also muted ahead of today’s BoE monetary policy meeting.

Downside risks remains on the pound given today’s BoE monetary policy meeting and whilst the market expects the BoE to keep the Quantitative Easing program at £375bln, as stated above, a surprise expansion would push the pound lower.

Key Announcements:

N/A – EUR – Spanish 10 Year Bond Auction: Previously at 5.202%

N/A – EUR – France 10 Year Bond Auction: Previously at 2.3%.

10.00am – EUR – Greek Unemployment Rate: Previously at 27%.

11.00am – EUR – German Factory Orders: Expected to increase to 1.6%.

12.00pm – GBP – BoE Interest Rate Decision: Expected to remain at 0.5%.

12.00pm – GBP – BoE Asset Purchase Facility: Expected to remain at £375bln.

12.45pm – EUR – ECB Interest Rate Decision: Expected to remain at 0.75%.

13.30pm – EUR – ECB Monetary Policy Meeting.

13.30pm – USD – Initial Jobless Claims: Expected to improve to 355k.

13.30pm – USD – Trade Balance: Expected to decrease to –US$43.00bln.

23.50pm – JPY – Gross Domestic Product: Previous figures were -1%.