Daily Market Report 17/01/2013

With no UK economic data to support it, sterling fell against all 16 of its major peers yesterday as the market focused in on Prime Minister David Cameron’s plans on repatriating powers from the European Union.

Speaking in Parliament yesterday afternoon, David Cameron faced criticism on his desire to renegotiate the terms of Britain’s EU membership over fears of how it could jeopardise the UK’s business prospects. With the current negative sentiment on the UK economy, the debate, so far, seems to be detrimental for the pound.

Flows into the safe haven of the US dollar were apparent yesterday following the surprise announcement by World Bank officials to downgrade growth forecasts for the global economy to 2.4% expansion from earlier forecasts of 3%. The World Bank expects contraction in the euro zone and a slowdown in growth in Japan and emerging economies, with particular reference to Brazil and India. Growth in India is estimated to gain by 6.5% in the next year, lower than the decade average of 8%

The euro gained support following ECB member Ewald Nowotny’s comments that the rise in the euro was “not a matter of concern”; contradicting earlier comments made by Jean Claude Juncker that the euro was “dangerously high”. With inflation in the euro zone stable at 2.2% and thus no signs of deflation in the region, Nowotny suppressed the need of a rate cut in the near term to spur inflationary pressures.

The Fed’s Beige Book last night showed that growth remained slow in the US and unemployment in the US still remains high. This seems to support Federal Reserve’s Ben Bernanke and Eric Rosengren’s stance that more asset purchasing is necessary to spur growth and employment. Last night the IMF also agreed to pay the next tranche of bailout funds, €3.24bn, to the Greek government, potentially averting a default and thus giving further support for the euro.

With little economic data to support the pound and with the market focusing on the debate surrounding Britain’s EU membership, risk averse clients are suggested to hedge against any further falls by locking in now and those of an optimistic nature should consider leaving a Limit Order to take advantage of any short term swings higher. Please call your dealer for suggested levels.

Key Announcements Today:

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

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

9.00am – EUR – ECB Monthly Report

13.30pm – US – Building Permits: Expected to rise to 0.903mill (MoM).

13.30pm – US – Initial Jobless Claims: Expected to decrease to 365k.

13.30pm – US – Philadelphia Fed Manufacturing Survey: Expected to decrease to 7.1.