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European relief rally
Optimism that a last minute agreement will avoid any chance of the US defaulting has given European markets a relief rally. Unfortunately, however, longer-term solutions are unlikely to be found in such a short space of time.
The Bank of England’s decision to hold the interest rate steady was fully anticipated, and was also accompanied by a Monetary Policy Committee statement designed not to rock the boat. The volume and enthusiasm of buying today appears to represent more of a reshuffling of books than conviction buying; however, regardless, the positive price movement across markets will have been welcomed by traders battling fatigue from almost a month’s worth of negativity.
SSE has issued a statement informing markets that the average household will see an annual increase to oil and gas bills of over 8%, ensuring that its PR team will be fighting fires for days to come.
Royal Bank of Scotland has wasted no time in offering loans under the new government Help to Buy scheme and its shares have risen by almost 4%.
Positive rumours from Washington
The news that Mr Obama is going to nominate Janet Yellen as the new chairwomen to head up the Federal Reserve has broadly been seen as good news; what it means for the longer-term strategy of the Fed’s anticipated tapering of the quantitative easing policy is less clear. Ms Yellen is widely regarded as dovish and as such is likely to be even slower to move on this than the current head Ben Bernanke.
Gold’s performance over the week has been far from impressive, and today it dipped below the $1300 level. Gold bugs must be feeling particularly depressed that the precious metal has shown such little desire to fight, especially with fear levels rising.
While the recovery of Libya has been fragile, the events of the last 24 hours have surrounded the country with even more uncertainty, and, considering the key role it plays in the supply of Brent crude oil, fears are that supply may ultimately be affected.
US uncertainty confuses currencies
GBP/USD has crept back down below the 1.6000 level; this looks to be a market correction driven by rumours coming out of Washington rather than any change in sentiment to either currency. The Bank of England’s decision to maintain the base rate at current levels has probably been almost fully factored in and would not have had too much influence on the day’s trading. The continuing uncertainty surrounding both the US budget and the debt ceiling has muddied the currency market's waters and prevented sensible values from being attributed to the major currencies.