Market Report

Friday the 13th it may be but there has been nothing to spook the markets into life over night. The repealing of US interest rate sentiment has continued over night with the hawks gaining further confirmation from the fed that "some additional firming of policy may yet be necessary to bring inflation back to a range consistent with price stability in a reasonable period of time". This combined with the Dow Jones on the verge of 12,000 for the first time ever may well lead to some more sustained USD support in the short term.

In the UK, growth data showed the slowest rate of expansion in one and a half years last quarter. However with inflation remaining a concern in the UK as well there remains a chance of an interest rate hike in November but this will only lead to a pause in the slide as GBP loses its shine going into the year end.

In Japan and Australia the JPY and AUD were given a boost overnight as officials suggested that a further rate hike may not be too far away.

Have a great weekend.

VC

Overnight we have had two significant developments from the US, the first being the unfortunate aircraft crash into a tower block, and although the threat of terrorism was quickly played down it brought added volatility to currencies overnight. The other was the release of the minutes of the 20th Sept. Fed meeting, where despite the market sentiment recently that US rates are about to turn lower, there was no mention of any prospect of a rate cut. Instead officials saw a "substantial risk" that inflation won't ease as they predict.

Again, the over-negativity that has been priced into the US curve that we have alluded to on a regular basis has been highlighted at the highest level!

In the UK, GBP is likely to encounter buyers today as a house price report overnight showed house prices rising to their highest level in four years last month.

As we stated yesterday there is likely to be more two way volatility in GBPUSD from here but overall our view is that GBP continues to move lower.

The main data focus for the day will be the US trade balance and this will lead the direction for this afternoon.

Have a great day

VC

GBP/USD has declined significantly over the last couple of days as a reassessment of the relative strengths of UK and US economies have occurred. After five days of falling, although our central view is that GBP continues to slide, we are likely to see more two-way volatility. The has been increased positive rhetoric from commentators on the US and BoE Gov. Mervin King's statement that inflation remains a concern for policy makers will certainly keep the rate hike for November heavily pencilled in.

Mervin King also said, late last night "All the good news has been priced in that's why the pound has dropped off a little bit" You heard that here first!

Minutes from the US Fed will be scrutinised for suggestions for future rate moves in the US and indeed the general health of the economy. This in my opinion is likely to extend the USD gains as fears of a dramatic slowdown in the US erode.

Have a good day!

NS

This morning sees the release of trade figures from the U.K at 9.30am with the expectations from some quarters that the trade deficit will have narrowed in August. However as we have been saying on this page for some time now there is far too much positivity priced into GBP and indeed far too much negativity priced into the US, GBPUSD will continue to slide!

The Dollar lost some ground against most currencies yesterday after a relatively calm reaction to North Korea's nuclear test. The knock on effect from the test seems to have been felt and the worst looks to be over.

The Euro seems to be being supported by the fact the Belgium National Bank Deputy Governor Luc Coene told journalists the ECB is likely to continue raising interest rates. The ECB has raised rates five times in the last ten months and is expected to raise them again in December from 3.25% to 3.50% to try and dampen the persistent threat of inflation in the Euro zone.

Have a great day.

VC

Today is a US holiday, so we have little in the way of economic data. This was not the case on Friday when we had the US non-farm payroll figures released. The headline figure came out weaker than expected at 51k, which would have normally weakened the Dollar, however the background detail and back revisions cast a much more positive slant. Despite the fact that fewer than expected jobs were created, revisions to US labour market statistics, dating back to 1996 saw the dollar record its biggest one-day gains for three month.

The reason for the gains is that the dollar positive news detracted from US rate cut sentiment.

GBP was heavily bought on Friday and it wasn't until the order had been finished that we started to see GBP slide. The price action in conjunction with our overall view on the state of the UK economy, suggest that we will see a continued slide in the value of GBP this week, mainly against the USD but also against EUR.

The South African Rand is the worlds worst performing currency this year, and there may be a chance of this continuing. The Rand has suffered as South Africa has their biggest current account gap for 24 years and on the back of gold's 12 percent drop since May. This may continue as the South African Bank Governor said that the currency was falling in an orderly fashion.

We should also monitor the situation in North Korea, as this could have an impact on currencies, the Japanese Yen and other currencies in the region more than most.

DE

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