Daily Market Report 11/10/2013

Yesterday we saw the pound claw back some its previous days decline although in the morning we did see the pound trade at a one month low against the euro.

As widely expected, the Bank of England’s Monetary Policy Committee (MPC) voted in favour of keeping interest rates at 0.5%. The Bank of England has said it will not increase interest rates until the unemployment rate falls from its current level of 7.7% to 7%. The MPC has also kept QE unchanged at £375bn. Although widely expected, the pound managed to strengthen on the back of these decisions.

In the US there was growing optimism that a deal will be struck to avert a U.S. debt default. Republicans in the House of Representatives have said will they will propose legislation for a short term debt limit increase to avoid the debt default. House Speaker John Boehner said a deal to agree a short term increase is reliant on the Democrats agreeing to start negotiations on fiscal issues.

On the back of these comments, the Dow Jones moved up 1.57%, the NASDAQ up 1.95%, the FTSE up 1.46%. This renewed investor optimism after stock markets had hit multi month lows over fears of the debt default.

On the data front from the US, initial jobless claims rose to 374,000, which is 64,000 more than was expected, reducing chances of tapering of the US monetary policy programme.

European Central Bank President Mario Draghi said yesterday that he will keep interest rates low as it allows for cuts in borrowing costs if market volatility resumes. The ECB are looking to prevent volatility in the borrowing rates from derailing euro zone economic recovery that Draghi has labelled subdued, uneven and fragile.

But despite his pessimistic viewpoint we are still seeing a strong demand for the euro causing the GBPEUR rate to drop below its up trending price channel that has been in place since August. So from a technical perspective, this could well signal a further fall in the GBPEUR rate.

This morning German inflation figures fell in line with expectations coming in at 1.6%. The rest of the day looks fairly subdued with only Canadian unemployment figures and US consumer sentiment figures up for release.

Key Announcements:

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

14.55pm – USD – Reuters/Michigan Consumer Sentiment Index (Oct) : Expected to fall to 76.