Daily Market Report 15/01/2013

The pound once again underperformed against many of its peers following Prime Minister David Cameron’s comments that although he is in favour of UK membership of the European Union, he did want to change the terms of the current relationship.

Investors turned their back on the pound as renegotiating EU membership could put the UK’s relationship with Europe at risk. David Cameron will deliver a speech on the issue on Friday 18th January.

Despite Industrial Production figures coming in lower than expected yesterday, showing that the euro zone is probably still in recession, the euro gathered further support following IMF chief, Christine Lagarde’s prediction that the euro zone’s recovery will begin this year adding to the hawkish comments made by ECB president Mario Draghi.

Federal Reserve President Ben Bernanke seemed nervous and cautious in his speech to Washington last night. Whilst commenting on the improvements in the US economy, he expressed concerns that both growth and the job market were still short of satisfactory levels. He also stated that Fiscal Policy needs to be looked at but warned aggressive spending cuts could hurt the economy as well as commenting that it is key that Congress addresses the debt ceiling. Interestingly enough, Bernanke didn’t seem to hint that QE could end towards the end of 2013 as he still considers it an effective tool to stimulate the economy.

German and Spanish inflation figures have come in as expected at 2.1% and 2.9% respectively, but have had little impact on the euro rate.

Although sentiment on the pound is still fairly negative, a technical bounce could come into play as investors could look to book profits on their existing positions following sterling’s sharp sell-off in recent weeks. To take advantage of any short term spikes, leaving a Limit Order with our dealers would be a suggestion.

Key Announcements Today:

9.30am – GBP – Consumer Price Index: Expected to remain at 2.7% (YoY).

9.30am – GBP – Producer Price Index Output: Expected to increase to 2.4% (YoY).

9.30am – GBP – Retail Price Index: Expected to remain at 3% (YoY).

10.00am – GBP – BoE’s Governor King Speech.

9.30am – US – Producer Price Index: Expected to decrease to 1.4% (YoY).

9.30am – US – Retail Sales: Expected to decrease to 0.2% (MoM).