Daily Currency report
5th December 2013
Daily Market Commentary
From Peter-John Theuninck, Currency Analyst at Baydonhill FX.
The Dollar strengthened sharply after better than expected private sector job creation raised expectations of monetary tightening by the Fed.
- The Bank of England is widely expected to keep monetary policy unchanged at their December meeting, giving little guidance for Sterling.
- The European Central Bank is equally unlikely to change monetary policy although talk of negative deposit rates will be of concern.
- US preliminary GDP for the third quarter will be released at 13:30 (GMT) with a higher growth rate being expected.
- Weekly jobless claims and durable goods data will be released this afternoon and is likely to provide further support for the Dollar.
The mixed performance in economic activity indicators has not eased speculation that an interest rate hike could take place sooner rather than later and the Bank of England meeting today will likely not dent such expectations.
UK PMI services data, released on Wednesday, fell short of expectations with the index coming out at 60.0 (forecast 62.0) versus 62.5 in November. Manufacturing and construction activity improved over the same period and raised market confidence and supported the Pound earlier in the week and despite the weaker service sector data, the Pound held steady.
The Bank of England announces its monetary policy decision at 12:00 (GMT) and investors are not expecting any changes to monetary policy. Interest rates are likely to remain at 0.50% with the value of the asset purchase scheme staying at £375bln at the November meeting.
The European Central Bank (ECB) announces its monetary policy at 12:45 (GMT) with the press conference at 13:30 (GMT). ECB President Mario Draghi is expected to continue to strike a distinctly dovish tone and express caution over the Euro-zone economic recovery.
German and French PMI data has this week indicated a sluggish recovery for Europe’s two largest economies which means that talk of negative deposit rates have not been quelled.
The US Dollar remains under some pressure as investors continue to show concern over US government funding and the debt ceiling, both of which will need to be renegotiated early next year.
The US ADP employment report beat market forecasts showing 215,000 new private sector jobs were created in November. Analysts had expected 173,000 new jobs compared to 130,000 the previous month.
Initial jobless claims will be released at 13:30 (GMT) although with preliminary third quarter GDP data. Weekly jobless claims data is forecast to show a marginal increase in the number of people claiming unemployment benefits.
Preliminary Q3 US GDP data is likely to give the Dollar some support as market participants are forecasting a 0.2% increase in growth. The GDP rate is expected to come out at 3.0% compared to the 2.8% growth rate in the previous quarter.