Daily Market Report 08/01/2013

Predictions of a challenging year for the pound

Though expectations of a euro rate cut are very high, an immediate reduction is deemed unlikely by analysts. It is thought that Thursday will not see the ECB lower interest rates, to 0.5%; resultantly this has prompted some reactionary strength in the single currency.

Euro buyers who are hanging off for the currency to depreciate will be perturbed by HSBC’s most recent prediction for 2013, in which they foresee sterling receding to €1.13. Clear support for the euro area from the troika provides optimism that the region will remain intact, whilst fears that the pound will see turbulence have also been a contributing factor.

The UK looks likely to lose its much venerated AAA rating as the threat of a triple-dip recession and an inadequate approach to austerity dampens the outlook on sterling. If the Bank of England looks to stimulate the dwindling economy, further QE could contribute to the currency’s deterioration.

Across the pond it has been suggested that the US will not have sufficient funds to meet its debt obligations by as early as February 15th, as yet this morning there has been no dramatic effect, with investors remaining comfortable in the perceived security that government forces would act prior to such an event becoming reality.

Finally, the Indian structural reforms that have been on-going and hotly deliberated appear to have provoked optimism in the developing nation’s economy. As India tames its inflation and likelihood of a rate cut spurs potential inward investment from abroad, it is anticipated that the rupee will be one of the best performing currencies of 2013. If analysts are correct, the currency will strengthen by up to ten percent across the year, making it an excellent opportunity to ‘lock-in’ current rates using a forward.

 

Today’s Key Announcements
  • 07.00am – EUR – German Trade Balance: down at 14.6b
  • 07.45am – EUR – French Trade Balance: improved to -4.3b
  • 09.00am – EUR – Italian Unemployment Rate: 11.1%
  • 10.00am – EUR – Retail Sales m/m: expected to improve to 0.3%
  • 10.00am – EUR – Unemployment Rate: expected at 11.8%
  • 11.00am – EUR – German Factory Orders m/m: sharp drop expected to -1.4%