Daily Market Report 16/01/2013

Sterling caught some relief yesterday, gaining against the majority of its peers, after figures showed that UK inflation held steady at 2.7% as well as profit taking amongst investors following the pounds recent sell off.

However the bearish tone on the UK economy still lurks in the background following credit rating agency Fitch’s warning that Britain’s AAA credit rating looks increasingly shaky over concern that the economy isn’t recovering as quickly as initially expected. Fitch have hinted a downgrade doesn’t look likely to happen anytime soon, however they will turn their focus on developments in the UK following the Budget in March.

The euro saw a sell off yesterday following official figures showing that the euro zones powerhouse economy, Germany, contracted by 0.5% in the last quarter of 2012. Euro group President Jean-Claude Juncker’s comment that the euro exchange rate is ‘dangerously high’ also put pressure on the euro as did Fitch’s warning that Spain could also see its credit rating cut unless they show signs of growth and can reduce unemployment.

Fitch were not done just there; their outlook on the US still remains negative. They warn that failure to raise the debt ceiling in a timely manner would not just prompt a review of the US AAA credit rating, but also would force the Treasury to immediately eliminate the deficit which in turn could potentially cause economic contraction “twice as great as the recently avoided fiscal cliff”.

The US dollar index rose over night as risk appetite seems to have subsided following a fall in Asian stock markets as well as ailing fears over an agreement over the debt ceiling.

US dollars buyers would still do well at present levels as the cross rate is one of the few that has held up despite the fundamental outlook for the UK. The trend for the pound still remains bearish and yesterday’s relief gives clients an opportunity to sell the pound at better levels than the previous two days.

Key Announcements Today:

N/A – EUR – 10 Year German Bond Auction.

10.00am – EUR – Consumer Price Index: Expected to remain at 2.2% (YoY).

13.30pm – US - Consumer Price Index: Expected to remain at 1.8% (YoY).

14.15pm – US – Industrial Production: Expected to decrease to 0.3%.

19.00pm – US – Fed’s Beige Book.