Daily Market Report 18/07/2013

The pound was boosted yesterday by some surprising voting by members of the Monetary Policy Committee at the Bank of England

All nine members voted to keep interest rates at 0.5%, which was expected, but surprisingly all nine members voted to keep quantitative easing at monthly purchases at £375bn, when in the six months prior, three members voted to increase the program. Instead the MPC will look to announce in next months meeting how they will use forward guidance when setting monetary policy

The BoE already announced two weeks ago that interest rates are set to remain at record lows for longer than markets were anticipating. Under forward guidance, the BoE will state a minimum time period to keep rates low, or until certain economic conditions have been met, such as an improvement in employment.
In fact, the number of jobless claims fell 21,200 in June, the biggest decline since June 2010, although the unemployment rate remained at 7.8%. However the decline did provide further support for the pound to gain.

The other major event of yesterday saw Bernanke testifying about economic policy in front of Congress. Bernanke reiterated his comments from last week that monetary policy would remain accommodative and thus the central bank’s monthly bond buying program could be tapered at a faster pace, slower pace or may even be increased depending on economic conditions, i.e. inflation climbing to the targeted 2% and unemployment falling. Bernanke will be testifying in front of the Senate Banking Committee today.

The Fed’s Beige Book last night reiterated comments made in Bernanke’s testimony by stating that the US economy continued to expand at a modest and moderate pace through early July.

Earlier in the day, data from the US showed that building permits and housing starts both tumbled in June by 7.5% and 9.9% respectively taking some attraction out of the US dollar in afternoon trade.

In Canada, interest rates were held at 1% for the 23rd consecutive announcement, which was expected. However in the following press conference, Bank of Canada governor Stephen Poloz had a dovish stance on the nation commenting that the economy remains sluggish and inflation remains muted, potentially delaying a case for a rise in interest rates.

Today the UK’s retail sector will come under focus, with expectations of a fall in June and from the US we will have job and manufacturing data from the US.

Key Announcements:

9.30am – GBP – Retail Sales (Jun): Expected to fall to 1.7%.

13.30pm – USD – Initial Jobless Claims (Jul 12): Expected to fall to 345,000.

15.00pm – USD – Fed’s Bernanke Speech,

15.00pm – USD – Philadelphia Fed Manufacturing Survey (Jul): Expected to fall to 7.8.