IFX Market Report

Yesterday saw Sterling continue to fall against both the Euro and USD, as continued fears regarding fiscal issues and the future political state of the UK.

This weakness came even though Gordon Brown was backed by fellow Labour ministers to remain in power, after an attempt to out him from leadership by way of secret ballot, failed to perspire.  This failure left the doors open for a possibility of a ‘Hung Parliament’ when the election arises within the next 5 months.  A ‘Hung Parliament, could show instability within the leadership of the UK, and with each party having different views on policies, could show disagreement on future political decisions.

This will not help Sterling and simply adds to the list of negatives, which already include the poor fiscal state in the UK as well as the possibility of the UK’s AAA Sovereign rating being downgraded.  Sterling was down by the afternoon session and traded at a 1 week low of $1.5896 USD, whilst trading slightly lower in the late morning at €1.1079 EUR.

Sterling made some minimal gains to €1.1121 EUR, and $1.6036. These gains were supported by Halifax showing UK house prices rose1% in December, a sixth month consecutive gain. Quantitative easing was left unchanged at a record £200 Billion, and Interest rates remained at 0.5% and are likely to remain without increase until at least February.

Sterling hit a 25 year low €1.7309 against the Aussie Dollar (AUD), as strong retail sales boosted chances of a further Interest rate increase strengthened it.

All eyes in the UK are still fixed on 26^th January, which will see the UK release it’s 4^th Quarter GDP estimate.  We are expected to see a growth, and any change in this prediction, could way heavily on Sterling.

This morning sees the release of Producer Price Index in the UK.  In the Eurozone data release GDP revised 3^rd Quarter figures, Unemployment Rate, and Industrial Production .  In the afternoon session via the USA we will see Average Hourly Earnings, Nonfarm Payrolls and Unemployment Rate.