Daily Market Report 22/01/2013

With thin trading as the US took a day off to celebrate Martin Luther King Day, pessimism over the health of the UK economy continued to spook investors as the pound suffered another day of selling pressure.

The pound continues to be the second worst performing currency of 2013 so far after the yen, weakening by 2.3 percent this year against a basket of other major currencies. Investors will be looking to the release of the Bank of England minutes and David Cameron’s postponed EU speech on Wednesday and the release of UK GDP figures on Friday for further cues about the next direction for the pound.

Finance ministers across the euro area assembled in Brussels yesterday for the Eurogroup meeting. As well as confirming that Jeroen Dijsselbloem, Dutch Finance Minister, will be taking over the helm as new president of the Eurogroup, euro finance chiefs also gave the green light over a €9.2 billon loan payment to Greece. The disbursement seems to indicate confidence in the Greek government to uphold budget cuts as well as keeping to terms of their rescue package. However a decision is still yet to be made over a €17 billion bailout for Cyprus.

Overnight we saw the Bank of Japan announce that it will buy 13 trillion yen in assets per month from January 2014 as well as setting a 2% inflation target. Risk appetite increased following the news with the euro, Australian dollar and New Zealand dollar all strengthening. However the news did seem to disappoint investors as much bolder action was expected by the Bank of Japan. The yen regained some of its recent losses against the pound gaining 0.65% overnight.

From a macroeconomic perspective, investors will turn their focus to UK public sector net borrowing, the ZEW Survey on economic sentiment from Germany this morning and in the afternoon US existing home sales.

The pound has started the day in similar fashion to how it ended last night; down against the majority of its peers. Whilst the market will oscillate in the short term, our rhetoric remains the same. We suggest that clients look at what their requirements will be over the next 6 months or even further given the current negative outlook for the economy, utilising forward contracts to hedge against any further potential falls of the pound helping you secure your profit margins, mitigating potential risk.

Key Announcements:

8.00am – EUR – Ecofin meeting.

9.30am – GBP – Public Sector Net Borrowing: Expected to decrease to £13.500 billion.

N/A – GBP – 10 year Gilt Auction.

10.00am – EUR – ZEW Survey on Economic Sentiment from Germany: Expected to rise to 12.

11.00am – GBP – CBI Industrial Trends Survey: Expected to rise to -11.

13.30pm – USD – Existing Home Sales Change: Expected to decrease to 1.2%.

13.30pm – CAD – Retail Sales: Expected to show decrease to 0%.