Daily Market Report 19/12/2013

GBP

The Office for National Statistics (ONS) revealed that unemployment in the three months to October was £2.39 million, or 7.4% of the working age population, down from 7.6% in the three months to September. Expectations are growing that Britain's first interest rate rise since the crisis will come sooner than Bank of England governor Mark Carney has indicated, given yesterday’s strong jobs data.

As a result we saw the pound jump up against most of its major trading partners as this raised the expectation that the BOE will consider raising interest rates once the unemployment rate reaches the 7% threshold outlined in their forward guidance.

The Bank of England interest rate committee also voiced its concerns over the strength of the pound and the detrimental impact this could have on the improving economy. With the BOE Stating that any further substantial increase will pose “additional risks” to the economic recovery.

USD

The US Federal Reserve has announced a slowdown in its effort to boost the US economy. The central bank said it planned to scale back its $85bn a month bond buying programme by US$10bn a month to US$75bn beginning in January 2014.

Bernanke and the Fed were also very cautious on the recovery in the US and made an adjustment to its forward guidance stating that interest rates will be kept at extremely low levels well past the time that unemployment rates decline past 6.5%. This stance will be further reinforced if inflation remains at or below 2% in the long run.

After this initial announcement there was a large sell off in the USD but it eventually strengthened against most of its major trading partners.

INR

India’s central bank unexpectedly kept its interest rates on hold at 7.75% maintaining their strong stance on inflation warning that it would act if needed to maintain.

Today

UK retail sales have marginally disappointed this morning limiting gains for the pound. Month on month sales rose as expected by 0.3% but year on year figures only rose by 2.3% and not by the expected 2.5%.

The US is releasing unemployment data out at 13.30pm with continuing jobless claims and initial jobless claims expected to show a slight improvement on the previous figures.

Key Announcements:

13.30pm – USD – Initial Jobless Claims (Dec 13): Expected to fall to 334,000.

15.00pm – USD – Existing Home Sales Change (Nov): Expected to fall by 1.5%.

15.00pm – USD – Philadelphia Fed Manufacturing Survey (Nov): Expected to rise to 10.