Daily Market Report 20/02/2013

Sterling fell to a new 7 month low against the US dollar amid rumours once again that credit rating agency S&P were looking to strip the UK of its AAA credit status.

The pound traded fairly flat through most of yesterday’s European session, as investors prepared themselves for todays minutes meeting and unemployment figures. However as the rumour mill swung into action, it would seem investors were spooked by the news and a broad sterling sell off ensued.

It is important to note that S&P put a negative outlook on the UK economy back in December so it does come as a surprise to see the pound weaken based on this rumour. But yesterday’s market reaction should not be ignored as it illustrates the point we have made before that investors will be looking to sell the pound on the back of any negative news on the UK economy.

Data released earlier in the day showed that German ZEW investor sentiment surpassed expectations enticing risk appetite amongst investors. Whilst stock markets flourished on the back of the data, notably the FTSE 100 rising 0.96% to a new five year high, the euro’s gains were limited.  Italy will hold its general elections this weekend and it would seem fears of a hung parliament, following a rise in popularity for Silvio Berlusconi, hindering economic reforms could limit further gains in the euro.

Elsewhere New Zealand’s central governor has come out and stated that he is ready to intervene in the currency markets to stop the “one way” direction that the dollar has shown since the start of the year.  Sterling has risen 0.8% off the back of the news.

Data released this morning has shown that producer prices in Germany rose to 1.7%, more than market expectations, whilst inflation in Germany fell to 1.7%.

Key Announcements:

9.30am – GBP – Bank of England Minutes.

9.30am – GBP – ILO Unemployment Rate: Expected to stay at 7.7%.

13.30pm – USD – Producer Price Index: Expected to rise to 0.2% for January.

15.00pm – EUR – Consumer Confidence (Feb): Expected to rise to -23.1.

19.00pm – USD – FOMC Minutes