Daily Market Report 12/12/2013

GBP

The pound finished the day lower than many of its trading counterparts yesterday following comments made by Bank of England policy marker Martin Weale that inflation has fallen sharply and unexpectedly over the summer.

Given that recent pound gains were influenced by the markets thinking that the BoE may hike up interest rates sooner than the third quarter 2015 forecast; Weale’s comments however dampened hopes of a rate hike as a higher rate of inflation is required for the BoE to raise rates.

The pound finished 0.7% lower against the both US dollar and euro respectively.

EUR

The euro was well supported following encouraging signs that Germany’s rate of inflation has increased form -0.2% to 0.2%. An improving inflation outlook does dampen the possibility of any further monetary policy being introduced by the ECB and as a result investors sought out the single bloc currency will not be a attracting a negative rate of inflation.

Traders seemed to shrug off the employment numbers from Greece yesterday which showed that an additional 14,023 people were unemployed in September with the unemployment rate increasing to 27.4%.

NZD

The Reserve Bank of New Zealand kept interest rates at 2.5% last night but did signal its intention to fight inflation by raising interest rates in first half of 2014 as the economy improves.

New Zealand could well be the first developed country to start raising interest rates as accelerating economic growth and a housing boom could well stoke up price pressures – a higher rate of interest would combat a higher rate of inflation.

AUD

The Australian dollar looks set to continue its longer term downtrend as the unemployment rate is set to have increased to 5.8% in November from 5.7%, although an additional 21,000 new jobs were added against an expectation of an additional 1,000.

Today

Data from France showed that inflation improved marginally in France from -0.1% to 0.0%. But inflation in Italy remained at -0.3% instead of rising to 0.1%.

Industrial production from the Eurozone has also missed expectations falling by 1.1% instead of rising by 0.2%. As a result the euro has weakened against both the US dollar and the pound in early morning trade

Mario Draghi is also set to be doing a speech in front of European Union parliament today also.

George Osborne, UK chancellor, will be appearing before the Treasury Committee of parliament from 10am to discuss last week's autumn statement.

Although there is an expectation for the number of people filing for jobless claims to increase by 23,000 this week, retails sales in the US is expected to increase from 0.4% to 0.6%, which could well provoke US dollar strength.

Key Announcements:

13.30pm – USD – Initial Jobless Claims (Dec 6): Expected to increase to 321,000.

13.30pm – USD – Retail Sales (Nov): Expected to increase to 0.6%.