Daily Market Report 29/8/2013

Wednesday’s movements on the pound were largely due to Mark Carney speaking in London. The Bank of England Governor had been expected to talk about the forward guidance that the bank have implemented; linking the unemployment rate to the base interest rate in the UK. He didn’t disappoint.

Carney was quick to make one point very clear. Stating that the bank needs to see the unemployment rate fall from 7.8% to 7.0% before looking at increasing the interest rate (something the bank forecast in three years) will not be a simple ‘trigger’ and that continued economic growth will be closely monitored to ensure that any rate increases will not be damaging to the recovering economy.

The second point Carney made was that he is increasing the amount of money that will be available for banks to lend by reducing the amount of capital the country’s banks need to hold on deposit with the bank as a safeguard. He went on to say that this is possible as the risks facing the banks have decreased sufficiently to allow such a move. Lending in the UK is estimated to receive (or at least have access to) an additional £90bn.

These moves by Carney bolstered the pound’s position as investor’s pounced on the positive steps taken by the bank to improve the credit situation in the UK. The decision on interest rates will now appear to be a waiting game. If the 7% unemployment rate is met within the bank’s forecasted timescale, will Carney implement any of the caveats to hold off on a rate increase?

The Syrian crisis has escalated further with President Obama stating that he believes the government in Syria were directly responsible for the chemical attacks on the Syrian people. In the UK Parliament are due to vote on what action ‘in principle’ should be taken. All of this news comes before the United Nations inspectors have completed their report from the ground. It is looking more and more likely that international intervention is a question of when rather than if.

A busy day in the calendar for Europe and the US as employment data and inflation figures from Germany are published. These figures will not only have potential economic repercussions for Germany and Europe but as elections draw closer in Germany; the data (depending on the outcome) could be used as leverage in the upcoming elections.  The overall unemployment rate is expected to remain the same at 6.8% with inflation expected to fall from 1.9% to 1.7%. This data could once again highlight a further improvement in the Eurozone.

The US will also post its revised Q2 GDP figures today that are expected to rise to 2.2%. Initial jobless claims are expected to fall by four thousand.