Markets poised ahead of President Draghi's speech as Mark Carney confirms that in the short term there is no requirement for further QE

Tom Tong27/Sep/2013Currency Updates

GBP

The pound lost ground against both the dollar and euro in early morning trading yesterday. Traders attributed the movement to retracement after the gains of the past few weeks. However, sterling clawed back the gains over night as the BOE Governor Mark Carney, commented in an interview to the Yorkshire Post that he did not see any requirement for further Quantitative Easing. He did stop short of going on the record as to when the BOE would tone down its current asset purchasing programme but continued to stress that rate hikes would not occur until the unemployment rate dropped beneath 7%.

Against the Japanese yen, sterling edged down 0.02% and against the euro, sterling rose 0.37% during the late Asian session. Against the Canadian dollar, the pound managed to reach near a three year high.

There was a further positivity for the Pound as Nationwide Housing Prices increased by 5% in September, an increase of 1.5% from the previous figure and well above most analysts’ predictions.

EUR

There was no real data of huge significance out of the eurozone yesterday, so the single currency continued the week’s trend of slowly losing strength against sterling.
Data out of the ECB has shown that there has been an increase in lending from banks in Spain. The troubled Iberian state saw an increase of 0.8% in the month. This is in stark contrast to the overall trend of the year, over the past 12 months Spanish Bank lending has decreased 12%. This is seen as a success for the ECB’s policy of extremely low interest rates.

There is a stand off developing between the ECB and the UK banking industry. The ECB increased regulation of the Banking sector and the introduction of the capital buffer is being questioned by a group representing Money Market Funds in the UK. As it stands, the MMFs will have to implement the regulations, although the group are arguing that they should not be treated like banks, and that the capital buffer will force some funds to relocate in order to survive. Thus, harming the ECB’s overall objective of allowing companies more options than Banks for their investments.

All eyes today will be focused on President Draghi’s speech this morning and the top tier data of Germany’s Consumer Price Index, with most analysts expecting the figure to stay at 1.5%.

USD

With Treasury Secretary Jack Lew suggesting earlier this week that the US would hit its debt ceiling by the 17th of next month, the Democrats and Republicans continued their stalemate over extending the credit limit needed to avoid default. President Obama and the Democrats have said they will not negotiate with the Republicans over their demands to push through budget cuts in return for backing a rise in the borrowing limit. Washington faces a similar impasse over the debt ceiling that was seen back in 2011 whereby the Republicans and Democrats only reached agreement on the day that the government’s ability to borrow was due to expire.

Figures released yesterday confirmed that the US economy grew by 2.5% annualised in the second quarter of this year. Additionally, the US Department of Labour printed the Unemployment Claims figures yesterday which illustrated a reading of 305,000 – slightly better than analysts’ expectations of 319,000.

Furthermore, Fed board member Jeremy Stein yesterday suggested that he would have favoured initiating the tapering of its asset purchases at the FOMC meeting earlier this month. In his speech in Frankfurt, Stein advocated a rules-based approach to the cutting of monthly asset purchases according to the strengthening of various core economic numbers such as the unemployment rate.

Data release of note today includes Personal Income with a modest rise of 0.3% expected, Nominal Spending with a 0.2% rise expected, Real Spending 0.1% and University of Michigan consumer sentiment expected at 78.0.

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Written by Tom Tong

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