Daily Market Report 29/07/2013

Very little data on Friday lead to minimal movements on the currency markets especially for the pound. The dollar’s position against the pound strengthened slightly as US consumer confidence surprises the markets with an unexpected increase.

The euro gathered some momentum as the rating agency Standard & Poor’s affirmed an A- rating for Slovenia with a stable outlook. This was enough to help the euro climb against the pound although gains against the dollar were restricted.

The main news on Friday really came from the International Monetary Fund (IMF) who stated that in their opinion the US Dollar is overvalued to the tune of 10% and that risks to the US economic outlook are modestly tilted to the downside. The IMF went on to say that market volatility depends heavily on the US economy and that a slowdown of the QE program in the States if not carried out slowly and carefully, could lead to excessive interest rate and market volatility.

Markets are finding it difficult to simply waylay fears over the US QE situation and who can blame them? Mere rumours have been enough to create dramatic short term swings in both the value of the US dollar and the overall value of global share prices. The consequences of being caught napping with open positions without taking the relevant cover could be significant.

This week will most certainly be focusing on the Federal Reserve rate decision on Wednesday for any further hints on the QE program where as closer to home, Mark Carney will be in the spot light once again as this time last month, he shocked the markets with statement over the interest rates in the UK; something we were not accustomed to during Mervyn King’s tenure. Both events represent significant risk in terms of volatility of the pound and the dollar with wider reaching consequences for global share prices.

Overall, the pound could find itself at the bottom of the stack especially when you consider Europe’s strong week and with consumer confidence and inflation data emerging this week, strong data here could see the euro push the pound back to the lowest levels seen this year so far.

Key Announcements:

9.30am – GBP – Mortgage Approvals (Jun):  Increased to 59,000.

9.30am – GBP – Net Lending to Individuals (Jun): Increased to £1.4bn.

15.00pm – USD – Pending Home Sales (Jun): Expected to fall -1%.

15.30pm – USD – Dallas Fed Manufacturing Business Index (Jul): Previously at 6.50.