Daily Market Report 31/01/2014

GBP

Sterling strengthened against the euro as a Bank of England report showed mortgage approvals climbed to the highest level in six years last month, although the data was slightly lower than market expectations.

The pound was weaker against the dollar at the moment but that’s more because of dollar strength after the Federal open market committee meeting, where they reduced their monthly bond buying program by US$10bn – a practice that typically devalues a currency.

However, with the positive performance of the UK economy at the moment, there is still a positive outlook for some pound strength.

The only factor at this present time which could derail progress is next year’s referendum on independence for Scotland.

The UK treasury has already confirmed that should the Scottish people come out in favour of a break from the Union, then the UK government would honour all existing government bonds and the new Scottish government would start its life without any debt commitments.

Carney also mentioned in yesterday's meeting that if Scotland gets it wrong, then it could lead to similar problems to those suffered by the Eurozone which poses a major threat to the future prospects of the pound.

USD

Figures officially showed that The US economy grew by 3.2% in the fourth quarter, which was spot on with expectations. It compares to a 4.1% rise in GDP in the third quarter, and benefited from strong household spending and rising exports.

Consumer spending, which makes up 70% of the economy, rose by 3.3%, which is the strongest since the fourth quarter of 2010 while exports grew by 11.4%.

One slight obstacle to the strength of the US dollar was the latest set of jobless claims figures. The number of Americans filing new claims for unemployment benefit rose by 19,000 to 348,000 last week compared to an expected figure of 330,000. There was also of a slowdown in the housing market. Pending home sales fell 8.7% in December, according to an index from the National Association of Realtors. This was the lowest level since October 2011.

Housing sales have been hit by a rise in mortgage rates, but the cold disruptive weather across the country in December forced people indoors and prevented some buyers from looking at homes or making offers.

Today

Eurozone unemployment numbers are due for release this morning. Despite the region emerging from recession last year and joblessness falling in Germany, unemployment in the single bloc area remains stubbornly high.

Eurozone inflation numbers are due for release also this morning which should give a better indication as to what action the ECB may take with regards to interest rates. Higher inflation would take pressure off the ECB from reducing interest rates further and thus should give the euro a reason to strengthen.

Key Announcements:

10.00am – EUR – Consumer Price Index (Jan): Expected to rise to 0.9%.

10.00am – EUR – Unemployment Rate (Dec): Expected to remain at 12.1%.

13.30pm – CAD – GDP (Nov): Expected to fall to 0.2%.

13.30pm – USD – Personal Income (Dec): Expected to remain at 0.2%.

13.30pm – USD – Personal Spending (Dec): Expected to fall to 0.3%.