Daily Market Report 12/09/2013

The pound enjoyed perhaps its strongest day on Wednesday in what is swiftly becoming a very strong uptrend. Against the US dollar, the pound surged to eight month high prices up nearly 6% from the lows we saw at the start of July. This represents a significant opportunity for dollar buyers especially when you consider that the lows in July were predominantly fuelled by speculation over the Fed’s stance on QE. The Fed is meeting next week and it would appear that opinion is split over whether or not any tapering will occur.

The pound’s moves on Wednesday were due to the unemployment data from the UK for the month of July which saw a significant fall in the number of people applying for benefits (the lowest levels since February 2009) and the overall unemployment rate dropped from 7.8% to 7.7%. This news was more in focus than usual as Mark Carney’s new forward guidance has linked the unemployment rate to the interest rates in the UK. As the Bank of England had originally forecast a fall in the unemployment rate down to 7% to take 3 years, Mark Carney may come under the spotlight again to defend the Bank’s initial position as he speaks in Parliament today.

The main risk event on the horizon is still the Fed’s outlook on the QE program in the US. It is certainly a question of when rather than if and as the inflation rate, unemployment rate and strong economic performance of the US economy are anything to go by, Bernanke and the Fed may be tempted to make a reduction sooner rather than later. However echoes from the IMF who warned that an overaggressive reduction may spark global volatility still remain and the Syrian crisis has already rocked global equity prices. Would the Fed risk sparking a global selloff of anything regarded as a risk? Share prices could see significant loses damaging what has been a decent few months as investors seek the nearest safe haven.

Looking to head to today, Mark Carney and several other members of the monetary policy committee will be in the spotlight this morning as they prepare to be grilled about last month’s quarterly inflation report by various MP’s in Westminster. Later in the afternoon, the latest jobless claims figures from the US will come under focus as the labour market continues to be scrutinized ahead of the Fed’s decision to taper quantitative easing.

Key Announcements:

10.00am – GBP – Inflation Report Hearing.

13.30pm – USD – Initial Jobless Claims (Sep 6): Expected to rise to 330,000.