Daily Market Report – 09/10/2015

EUR
In early morning trading, Germany released a handful of weaker than expected
economic data releases, which saw GBPEUR rise before most of the UK had had
their morning coffee. 
 
The fall in imports by -3.1% in August compared to a month earlier was viewed
as a sign of slowing domestic demand. To compound matters, exports were seen to
slow by a comparatively larger -5.2%, indicating slowing global demand for
German goods and services. Accordingly, the Euro weakened in early morning

EUR
In early morning trading, Germany released a handful of weaker than expected
economic data releases, which saw GBPEUR rise before most of the UK had had
their morning coffee. 
 
The fall in imports by -3.1% in August compared to a month earlier was viewed
as a sign of slowing domestic demand. To compound matters, exports were seen to
slow by a comparatively larger -5.2%, indicating slowing global demand for
German goods and services. Accordingly, the Euro weakened in early morning
trading against the US Dollar and the Pound Sterling, as we led into the Bank
of England’s interest rate announcement at midday. 
 
GBP
The Bank of England’s Monetary Policy Committee announced at midday yesterday
that the Base Rate would remain on hold at 0.5% by split majority vote. The
committee voted 8-1-0, with Ian Mcafferty the single member continuing to vote
for a rate hike, the remainders voting for no change and no one voting for a
rate cut. 
 
The committee cited that the U.K. economy is withstanding global pressures,
whilst signalling that they have room to keep the Base Rate at a record low as
inflation weakness persists. They continued to cite that the near-term outlook
for inflation had weakened since August and that price growth would probably
stay below 1% until spring 2016.

The BoE’s analysis showed that unit-labour costs are not yet strong enough to
push inflation back to its 2% target. While the Office of National Statistics
have put the annual increase in unit labour costs at 2.2% in Q2, the central
bank has said the underlying figure may be much weaker.

Investors are now pricing in a rate increase in late 2016. 
 
Overall it was a slightly more dovish statement than the market had expected,
which saw sterling weaken against the US Dollar and Euro accordingly in the
afternoon session. 
 
USD
Shortly after the BoE announcement the US released initial and continuing
jobless claims. Both showed improving labour market conditions in the US, with
initial jobless claims falling to 263k, from 276k a month earlier, and
continuing jobless claims at 2.204m, which was lower than analyst expectations
of 2.205m. Essentially, fewer people in the US are claiming employment benefits
than the market had expected. 
 
Coupled with the dovish announcement from the BoE, GBPUSD slid in early
afternoon trading. 
 
At 1900 London time yesterday, the FOMC released minutes from their September
16-17 meeting, where they kept rates on hold and Janet Yellen revised inflation
forecasts and the interest rate path downward due to low oil prices, the
slowdown in China and the appreciating US Dollar. 
 
As expected the minutes revealed that Federal Reserve officials put off an
interest-rate increase in September because of growing risks to their outlook
for economic growth and inflation, mainly from China, even as they continued to
say they were on track to raise the target later this year.

The minutes showed that although the FOMC had noted that domestic economic
conditions, including data on consumer spending and housing, had continued to
improve, and the labour market had reached, or was close to, the committee’s
long-run estimates for unemployment, the committee decided that it was prudent
to wait for additional information to confirm that the economic outlook had not
deteriorated, before committing to hike US rates.

Key Announcements

09:00 – GBP :Goods Trade Balance deficit for August expected to narrow to
£-10bn from £-11.08bn
13:30 – USD :US Import Prices are expected to fall by -0.2% in September from
-1.4% in August
13:30 – USD :US Export Prices are expected to fall by -0.5% in September from
-1.8% in August