Market News & Insights
9 December 2013

Taper is the Talk of the Town

EUR/USD 1.3716
GBP/USD 1.6366
GBP/EUR 1.1931 (0.8380)
EUR/CHF 1.2235
GBP/CHF 1.4598
GBP/AUD 1.8031

Today sees very little in the way of economic news for the UK. Sterling continued to slide to a four day decline against the Euro and was little changed versus the greenback ahead of BOE Governor Mark Carney’s speech at The Economic Club of New York today. The Pound has given up some of its recent gains ahead of tomorrow’s UK industrial output which economists believe will show a slowdown in October. Industrial production in the UK is expected to drop to 0.4 percent after climbing 0.9 percent in September. The pound traded at USD 1.6365 as of 7.31 am climbing to USD 1.6443 on December the 2nd, the highest since August 2011. Strong figures from the UK have contributed to the pound gaining 5.6 percent in the past six months and allowing the U.K to lead the way in economic recovery. It seems the U.K recovery is outpacing Mark Carney’s prediction and thus fuelling speculation the Bank of England will increase borrowing costs sooner than initially guided.

We have already had our first bit of economic news from the Eurozone by way of German Trade Balance, 16.8B versus 17.4B expected. We also have German Industrial Production due this morning but other than that it is all quiet on the Euro front. All eyes will no doubt be on tomorrow’s speech from Mario Draghi, last week’s meeting saw the ECB suggesting that further easing is a possibility, but it does not appear the ECB will be acting any time soon, pushing EUR/USD to month highs. Negative deposit rates and further LTRO style operations are still a possibility and still fresh in the minds of most. Mario Draghi has stated before that the ECB are technically ready to impose negative deposit rates but this has only been discussed briefly. Mario Draghi is not shy of verbally stepping in and firing a warning shot to the market letting them know that they will and can do what is necessary to offer stability to the 17 nation currency.

US job growth remained solid in November as jobless rates fell to a five year low of 7 percent as payrolls swelled by 203,000 in November as American employers added more workers than forecast. This has seen the number of economists predicting a ‘Dectaper’ at the Dec. 17-18 FOMC policy meeting double from 17 to 34 percent a recent Bloomberg survey showed. The FOMC has previously pledged to continue buying bonds until the “outlook for the labour market has improved substantially” and with the average 4 month payroll reports at 204,000 it is easy to see the change in heart from some economists.

Friday also saw US consumer sentiment surge as the Michigan Confidence survey came in at 82.5 vs. 76.0 expected, the highest reading for the index since July. Friday’s data highlights how the US has managed to shrug off the US government shutdown, and if we are to see a ‘Dectaper’ then this week’s data could carry even more significant value, Thursday’s retail sales is one to keep an eye on.