Markets await BOE and ECB statement

Tom Tong06/Oct/2011Currency Updates

GBP

Following better than expected manufacturing data on Monday, yesterday saw Services PMI rise from 51.1 to 52.9. Despite the uptake the services sector is set for a rocky period in the months to come.

Yesterday also saw GDP final figures revised downwards from a miserable 0.2% to 0.1%. This had added more weight to the argument that the UK is set to enter a second recession.

Today we have the Bank of England interest rate decision. Policy makers are set to keep interest rates on hold, while another batch of QE is set to be put on the back burner until next month.

EUR

Markets remain on tender hooks with regards to the ongoing banking situation in the Euro zone. Reports last night emerged that a solution will be put in place to help European banks that are over exposed to European debt. This report was given further backing when Alexander Merkel stated that they would do all they can to support European banks.

Despite these reports some expect very little to happen at today’s European Central Bank meeting. Given the fact that the meeting is Trichet’s last at the helm, some expect interest rates to remain as they are and very little to happen regarding helping European banks.

Also out today is Germany factory orders. After a massive drop in August the report is set to post a 0.2% increase. A positive reading should lift the Euro but this data holds little value in comparison to what is said and done at the ECB meeting.

USD

It was a mixed bag for the USD yesterday, with bad data out and risk appetite returning to the market.

Equity markets closed on a high following reports that the Eurozone will do all they can to help their banks. This led to investors turning their back on the USD and move towards higher yielding ‘riskier currencies’.

On the data front, the challenger job cuts showed a rise of 126% in September, the highest number of job cuts since April 2009. ISM services index fell from 53.3 to 53, worth noting that this is more in line with slow growth as opposed to recession. Furthermore ADP employment figures edged higher from 89,000 to 91,000.

Today we see weekly jobless claims out with a figure of 411,000 expected. In the event that this figure is under shot then traders will begin to position themselves for a weak Non Farm Payroll report on tomorrow.

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Written by Tom Tong

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