Daily Market Report 25/02/2013

Sterling dropped to a 2 ½ year low against the US dollar overnight after Moody’s cut the UK’s credit rating from ‘Aaa’ to ‘Aa1’ on Friday evening.

Moody’s gave reasoning for the decision as they see weakness in the country’s growth outlook, a rising debt burden and foresee challenges to the government’s fiscal consolidation program. Whilst the decision was not surprising and thus a lot of the negative news may already be priced in; further weakness in the pound can not be ruled out as Fitch and S&P may also downgrade the UK’s credit rating.

In other news, the euro fell under pressure on Friday after the European Commission slashed its growth expectations for the euro zone, forecasting a contraction of 0.3% during 2013 instead of the 0.1% growth that was initially expected. Also the European Central Bank announced on Friday that 356 banks will repay €61.1bln of the Long Term Refinancing Operation fund that was made last year, instead of the €130bln that the market had been expecting.

Data released on Friday also revealed that retail sales in Canada fell by 2.1% instead of falling 0.1%, like the market anticipated, as well as inflation falling short of market expectations. The figures indicate that growth in the economy may be slowing as well as indicating a possible rate cut from the Bank of Canada in the future.

The outcome of Italy’s general election will be the next event on the horizon for euro investors. Latest polls suggest democratic leader Pier Luigi Bersani is in the lead with former Prime Minister Silvio Berlusconi at a close second. Investors will be concerned that the reforms that Mario Monti had put in place may be under threat should Berlusconi win or if he is involved in a coalition process, and thus this could put pressure on the euro.

Key Announcements:

9.30am – GBP – BBA Mortgage Approvals: Expected to increase to 34.2k.

13.30pm – USD – Chicago Fed National Activity Index: Previously at 0.02.

17.15pm – CAD – BoC Governor Mark Carney Speech.