Daily Market Report 21/05/13

In what was a quiet session with very little economic data to move markets, yesterday bought profit taking into play with the US dollar broadly falling against most of its peers.

In what was a quiet session with very little economic data to move markets, yesterday bought profit taking into play with the US dollar broadly falling against most of its peers.

Ahead of Fed Chairman Ben Bernanke’s appearance in Congress on Wednesday, US dollar positions looked to be squared off in anticipation of what Bernanke may say on the Fed’s stance on monetary stimulus. Following the recent encouraging data from the US as well as comments made by various members of the Fed, the market had began pricing in the likelihood of the Fed tapering its stimulus package sooner rather than later.

Sterling remained well supported ahead of the release of today’s inflation figures after data revealed yesterday that house prices rose 2.1% in May taking the increase to 9.1% for the first five months of this year – adding to optimism that the economy was improving.

Both the Australian dollar and New Zealand dollar caught some relief against the pound as technical studies suggested that the recent moves on both crosses were overbought causing profit taking to ensue. The pound has risen by 6.2% in the last month against the New Zealand dollar and by 8.75% against the Australian dollar.

The other notable move saw the South African rand weaken across the board as speculation mounted that slowing inflation would give the central bank scope to lower interest rates. A fall in commodity prices and slower consumer demand has put pressure on inflation forecasts. The central bank will announce its interest rate decision on May 25th. GBP/ZAR is currently at a 4 year high.

Data released this morning has shown the German producer price inflation fell to 0.1% in April but this has had very little effect on the euro.

The pound has begun the day on the back foot as the market prices in expectations that inflation has fallen from 2.8% to 2.6% in April.

Key Announcements:

9.30am – GBP – Consumer Price Index (Apr): Expected to fall to 2.6%.

17.45pm – CAD – BoC Governor Mark Carney Speech