Daily Market Report 16/12/2013

GBP

The pound fell across the board on Friday following comments made by Bank of England Chief Economist Spencer Dale that interest rates will stay low in the UK for the foreseeable future.

As we have seen over the last four months, the pound has been supported by the expectation that the Bank of England may increase interest rates on the back of an improving economic outlook. However, we have seen a consistent rhetoric echoed by members of the BoE stating that a hike in interest rates will only occur if we see a sustained period of economic growth – which is what we saw again on Friday by Dale.

The pound fell for the second consecutive week against both the US dollar and the euro.

EUR

The euro continued to be supported on Friday despite data from Eurostat showing that employment fell in line with forecasts by 0.8% in the third quarter. The underlying theme of the prospect of further monetary easing continuing so subsided was further supported as inflation in Spain rose to 0.2% in November.

USD

With all eyes on this Wednesday’s monetary policy meeting in the US, we did see some profit taking on the US dollar as although producer price index figures, released on Friday, showed an improvement in November from October, the data did marginally miss expectations coming in at -0.1% instead of being unchanged at 0.0%

Recent data has started speculation that the Fed may start to taper its monetary policy programme on Wednesday but it does appear that investors are reluctant to strengthen the US dollar any further until a formal announcement is made by the Fed.

JPY

Data from the Tankan survey was mixed from Japan; with the manufacturing index rising to 16 from 12 in the fourth quarter but services failed to rise to 17 from 11, only climbing to 14. The yen strengthened very minimally only by 0.15% off the data.

Today

The pound started the day well after Rightmove revealed that house prices increased by 5.4% in December.

The euro has continued its recent bout of strength after Markit manufacturing figures from Germany and the Eurozone improved in December, although service sector figures did fall short of expectations ECB president is set to make a speech in the afternoon.

Data from the US today could well be supportive for the US dollar as manufacturing figures form Markit and NY Empire state are forecasted to have improved in December and industrial production is also set to have improved in November. However moves on the US dollar will be limited as markets will most probably wait until Wednesday decision before cementing a viewpoint on the US dollar.

Key Announcements:

13.30pm – USD – NY Empire State Manufacturing Index (Dec): Expected to improve to 4.50.

13.58pm – USD – Markit Manufacturing PMI (Dec): Expected to improve to 55.00.

14.00pm – EUR – ECB President Draghi Speech.

14.15pm – USD – Industrial Production (Nov): Expected to increase by 0.4%.