Daily Market Report 15/05/13

Tuesday encountered the pound weakening further amid speculation that the Bank of England’s inflation report today would bring to light the Bank’s stance of the future of the UK economy. Inflation targets, QE and Mark Carney’s imminent arrival have all sparked uncertainty for the pound.

The pound had been one of the best performers last month along with the Canadian dollar but the last 4 days have seen a 2.6% drop against the dollar and 1.4% drop against the euro.

Tuesday encountered the pound weakening further amid speculation that the Bank of England’s inflation report today would bring to light the Bank’s stance of the future of the UK economy. Inflation targets, QE and Mark Carney’s imminent arrival have all sparked uncertainty for the pound.

The pound had been one of the best performers last month along with the Canadian dollar but the last 4 days have seen a 2.6% drop against the dollar and 1.4% drop against the euro.

The fears surrounding today’s inflation report are compounded by the fact that the last report published in February highlighted the risks to an economic recovery which was swiftly followed by a loss of 0.8% against the dollar. David Cameron can perhaps shoulder some of the blame for this recent sterling sell off as his government have once again brought to light the UK’s position within Europe. It cannot be said that our role within Europe will be affected in the short term as the suggested referendum would not be until 2017 but this news really highlights the fickle nature of the markets and how contagion and uncertainty can flare up sparking major movements with little or no warning.

Although the UK is suffering, for the time being, global risk appetite is still thriving. Euro and dollar buyers cannot feel too hard done by following February’s lows but the momentum in the markets could easily see additional sterling sell offs especially when you consider Europe’s stubborn strength that fails to wain and the dollar’s recent resurgence; the Fed’s slightly smug position can be attributed to good employment figures, a declining budget deficit and thoughts that their asset purchasing program could be stepped back.

Today, the pound will be hoping for a reprieve from its recent performance following the Inflation report that is published at 10.30am which will slightly overshadow the UK employment figures due at 9.30am. We have already seen poor GDP data from Germany and France which has weakened the euro marginally although we are expecting the euro zone overall GDP at 10am. France has now officially fallen into the dreaded triple dip recession.

To summarise, a very volatile day will undoubtedly be ahead as we expect the markets to absorb significant amounts of important data.

Key Announcements:

9.30am – GBP – Claimant Count Change (Apr): Expected to improve to -3,000.

9.30am – GBP – ILO Unemployment Rate (3M) (Mar): Expected to remain at 7.9%.

10.00am – EUR – Gross Domestic Product (YoY) (Q1): Expected to remain at -0.9%.

10.30am – GBP – Bank of England Quarterly Inflation Report and Mervyn King Speech.

13.30pm – USD – Producer Price Index (YoY (Apr): Expected to fall to 0.8%.

00.50am – JPY – Gross Domestic Product (QoQ) (Q1): Expected to increase to 0.7%.