Daily Market Report - 29/05/2014

GBP:
Unexpectedly GBP lost against the Dollar for a second day running. Cable traded at 6 week lows during Wednesday’s session, with analysts judging that the rally that helped push Sterling to the 4 1/2-year highs was overdone.

The Pound was overbought, with investors placing bets that there was going to be an interest hike in the UK in response to steady growth from the UK economy. To counter the heightened appetite for GBP, the BOE released Dovish comments suggesting that the interest rates won’t rise until January 2015, as previously stated.

This was also combined with the new-mortgage approvals falling in the month of May; with house pricing underpinning the UK economy this news was obviously negative for the short-term UK economy outlook.  
 
Despite this slight drop we do not anticipate the weakness to be long-lived with the fundamentals of the UK economy still strong and in positive growth.
 
USD:
Despite the move in Cable, the USD did weaken against JPY, as US ten-year treasury yields fell to nine month lows of 2.5%. This lowered the requirement of USD, due to the appeal in US assets falling.  
 
EUR:
EUR/USD traded at a 3 1/2-month low after ECB board member Yves Mersch said yesterday officials are “comfortable” with conventional and unconventional measures. This re-opens the potential for further stimulus through QE or potential interest rate adjustment.
 
Today:
Today we have GDP figures out from the USD. The figures are forecast to come in at -0.2%. Should we miss forecast expect some short-term USD weakness and for cable to regain some of the ground lost on Wednesday.
 
We also have pending home sales out from the US. Having seen the impact that homes data had in the UK on Tuesday, we may see the USD move in response to this data.
 
Key Announcements

13:30 - USD - GDP Annualised (Q1) expected to fall to -0.2%

13:30 - USD - Initial Jobless Claims expected to be lower at 315K

13:30 - USD - Continuing Jobless Claims expected to be lower at 2.65M

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