Daily Market Report 20/08/2013

Monday saw the pound gain in strength against the dollar hitting a 2 month high. This still comes as an unexpected move as speculation over the Federal Reserve and their stance on quantitative easing. Globally, investor’s mentality does appear to be one of caution. Share prices around the world have generally been falling off slightly compared to the very bullish markets we witnessed one month ago. This apprehensive sentiment has been mirrored in the price of gold that has increased in value by 8% over the last 2 weeks. Once again, only time will tell how the value of the dollar will be affected when the Fed decide to reduce their QE program however the majority of analysts are expecting significant dollar strength with many of the major banks forecasting a move back below 1.50 over the next three months. All eyes will be on the Federal Reserve on Wednesday evening as they publish the minutes from their last FOMC meeting. Any hints that the Fed are moving towards a reduction in their QE program could be seen as a precursor to the future movements of the dollar.

In a week that has started with very little fundamental data from the UK, US and Europe, Thursday awaits the PMI data from the euro zone which is expected to show growth in the services and manufacturing sectors. The pound has fared well this week against the euro despite the improved GDP figures from the euro zone last week. We are currently seeing a six week high against the euro although Thursday could halt the pound’s rally against the single currency especially when you consider that the German Central Bank recently stated that it expects the economy in Germany to improve and return to ‘normal’ regardless of the Federal Reserve’s potential steps to reduce QE and reduce appetite for investment globally.

The pound also strengthened dramatically against the Indian rupee as it increased by more than 3 rupees to the pound on Monday as investors withdrew their money from the country predominantly fuelled by fears of an economic slowdown. An estimated $11.6bn has been withdrawn from the Indian stock market since June. This goes some way to highlight the concerns over the future of the Indian economy. Furthermore, Citi Bank has slashed in year-end forecast of the Indian stock exchange by nearly 10%. The value of the Indian rupee is certainly under huge pressure, will the new governor of the Reserve Bank take steps to stabilize the ailing currency?

Overnight the Reserve Bank of Australia hinted at further rate cuts in the future which weakened the Australian dollar again despite the overall sentiment from the last meeting being one of ‘contentment’ with the value of the dollar and the performance of the Australian economy. This has weakened the dollar to the lowest levels in 3 years presenting a great opportunity for anyone requiring Australian dollars.

Key Announcements:

13.30pm – USD – Chicago Fed National Activity Index (Jul): Previous figures were at -0.13.