Daily Market Report 18/02/2014

GBP

There was no economic data out from the UK yesterday but nonetheless the pound weakened across the board.

The reason? Looks like profit taking ahead of today’s inflation data release. UK Inflation is forecasted to fall to 1.9%, the lowest since November 2009, from 2% in December. This coincides with the Bank of England’s own forecasts that inflation will fall below the BoE target of 2% in the first quarter.

As a result, this should Mark Carney and the BoE breathing space to keep interest rates at 0.5%.

The pound has been buoyed since August 2013 by the prospect of an interest rate hiking occurring sooner than the BoE’s forecast of 2015. Whilst today’s inflation figures may dampen this prospect, general mid to long term sentiment remains for an interest rate hike to occur at some point this year – providing the prospect of further sterling gains.

JPY

The Japanese weakened to its lowest level in a month after the Bank of Japan boosted its two lending programmes, and reiterated its aggressive monetary stimulus programme; in order to meet its inflation target. As has been well documented over, further monetary easing will typically weaken the currency it is associated with.

AUD

In the minutes from the latest Reserve Bank of Australia board meeting, the central bank revealed a dreary job outlook with job creation below trend. This means that either unemployment is on the rise or less jobs are being created to keep in pace with the growth in the number of people employment.

Whilst economic growth was expected to “strengthen a little” in 2014, in general GDP growth is also well below trend. The Australian dollar still clearly lacks any real support so further weakness could be on the cards.

Today

As highlighted above, UK inflation figures are forecasted to fall from 2% to 1.9%, which is already causing the pound to weaken in early trade.

The latest ZEW survey of economic sentiment from the Eurozone and Germany is also scheduled to be released this morning, both forecasted to improve, which is already causing the euro to strengthen.

Key Announcements:

9.30am – GBP – Consumer Price Index (Jan): Forecasted to fall to 1.9%.

10.00am – EUR – ZEW Survey Economic Sentiment Eurozone (Feb): Expected to increase to 73.9.

10.00am – EUR – ZEW Survey Economic Sentiment Germany (Feb): Expected to increase to 61.7.