Daily Market Report 25/03/2013

In the early hours of this morning, Cypriot officials and EU finance ministers struck a deal for the bailout of Cyprus that should release the €10bn much needed for the country and thus avoiding an exit from the euro zone.

Under the agreement Laiki Bank (or Cyprus Popular Bank) will be shut down and split. All deposits under €100,000 will be protected, with deposits over €100,000 likely to face a heavy haircut – there have been indications that this haircut could be between 30-40%. The news has given some relief for the euro and this may continue in the short term given the losses that the euro made last week.

Despite sterling continuing to find support following last week’s budget and Bank of England minutes, further gains could once again be muted after credit rating agency Fitch announced late on Friday that a possible downgrade could be on the cards for the UK. The decision by Fitch looks set to be made before the end of April, with the credit rating agency citing the UK’s weak outlook for economic growth and high government debt levels as reasons behind its decision.

The only notable announcement on the calendar today will be Federal Reserve Chairman Ben Bernanke’s speech at 5:15pm. Bernanke indicated last week that the Fed will be ready to taper off its asset purchasing program in response to any further gains in the job market. As we have noted before, should the Federal Reserve reduce their quantitative easing program, the US dollar should draw in cash flows and thus may be likely to strengthen.

Key Announcements:

9.30am – GBP – BBA Mortgage Approval (Feb): Expected to improve to 33,600.

14.30pm – USD – Dallas Fed Manufacturing Business Index: Previous figures were 2.2.

17.15pm – USD – Fed’s Bernanke’s Speech.