Morning Report: 08 January 2015

8th January 2015 By: Admin

GBP With no fresh data out yesterday, sterling was side-lined by market participants, continuing to slowly drift lower against the dollar and remaining stagnant against the euro. The Bank of England is due to make its monthly interest rate policy announcement this lunchtime, but no change in policy expected. The BoE does feature prominently in headlines at the moment, though this is due to the release of minutes from Bank internal meetings between 2007-2009, which reveal the true extent of the BoE’s disarray during the recent financial crisis. The move to release the files, prompted by Governor Mark Carney’s new drive towards greater transparency over the Bank’s work, was designed to counter criticisms that the Bank was blighted by failures in accountability, oversight and political motivations, and simply casts yet another cloud over sterling.

EUR The euro once more posted fresh lows against the US dollar, as data showed that the Eurozone has once more slipped in to deflation, for the first time since 2009. The news increases the pressure on the European Central Bank to loosen monetary policy at its next policy meeting on January 22. The market sees an aggressive and bold policy being announced as almost a foregone conclusion; hence the euro being sold off to what is now a nine-year low. With no fresh data out today from Europe, we can expect to see the single currency remain under pressure against most of its peers.

USD Trade balance data from the US yesterday was better than expected, as was the ADP Non-Farm Employment change report. With no new information emanating from the release of the minutes from the Fed’s last policy meeting last night, markets remained happy to keep bidding the US dollar higher against most of its peers. Weekly unemployment claims numbers are due out at 1.30pm GMT, but are unlikely to prompt markets to move the greenback much away from its current levels in either direction, irrespective of the reading.

CAD The Canadian dollar managed to stage a mini-fightback against the US dollar yesterday, after the first week of the year had seen the loonie lose more than three percent against the greenback. The wave of CAD buying was partly triggered by a positive Richard Ivey School of Business Purchasing Managers Index, which surveys purchasing managers from a representative cross-section of the Canadian economy. In light of a wave of poor data regarding the Canadian economy over recent weeks, the figure was expected to drop to 52.3, barely over the 50.0 level that separates a growth or a contractionary figure. Instead, however, the 55.4 reading finally gave traders an excuse to stem the tide of CAD weakness we have seen so far this year. However, the Canadian dollar does continue to suffer from the weakness in oil and commodity prices, so any further strength is likely to be short-lived for now.

UK news

  • FT. TUC says 250,000 workers paid less than minimum wage: A quarter of a million UK workers are being paid less than the legal minimum wage, according to an estimate by the Trades Union Congress. The TUC wants tougher penalties for employers who repeatedly flout the law.
  • FT. Bank of England reforms on right track, says Andrew Tyrie: One of the fiercest critics of Bank of England governance believes that the institution now has the structures in place to avoid some of the failings it demonstrated during the financial crisis.
  • Reuters. UK businesses enjoy strong end to 2014, confident about prospects – BCC: British businesses enjoyed a strong end to 2014, marked by rising demand at home and abroad and a record number of companies hiring staff, a major business survey showed on Thursday.
  • Daily Mail. House prices ‘to drop 0.6% this year’ as London property reverses due to mansion tax fears and Russian money woes: House prices in Britain will drop by 0.6 per cent this year as the London property market slows markedly, according to a new forecast.