Forex, Sterling and Dow Jones Futures Trading - Monthly Review January 2011
The regular monthly spread trading review from IG Index.
The Month Ahead
UK Economy to Remain Firmly in Focus
Although January started quietly enough, two pieces of surprise news for the UK economy meant plenty of volatility in forex spread betting markets and that the UK economy is going to remain firmly in focus throughout February.
Inflation remains a problem and the latest reading of 3.7% was higher than expected, raising expectations that the Bank of England would have to raise rates sooner rather than later.
However, a bigger shock came later in the month when the latest GDP data showed a contraction in the economy of 0.5%, something which had just not been forecasted at all.
This makes the job of the Bank of England even more difficult. Raising rates risks serious impact on economic activity, and this means investors will be even more focused than usual on Bank of England releases this month.
The interest rate decision remains something of a non-event as it is highly unlikely for there to be any change in the short-term. However, the release of the minutes from the meeting, due out on 23 February, will be closely scrutinised to see just what the Bank thinks of the economy in light of that GDP shocker.
The GDP number gets revised twice and it was suggested that this latest one could be subject to more revision than usual. Of course, it can be revised either up or down, but it does mean when the first revision is released on 25 February it could inject another burst of volatility into markets.
Forex Spread Betting News
Sterling Claws Back December Losses
In January, Sterling managed to claw back some of the ground lost against the US Dollar towards the end of 2010 but it was far from plain sailing. Unsurprisingly, this recovery took something of a knock when the latest GDP data came in and GBP/USD dropped back around 200 points in very short order.
Since then the currency pair has managed to drag itself back up, putting the Pound at its best levels against the Dollar for a couple of months.
This is set to be an interesting market to watch over the next few months with high inflation and a stuttering economic recovery providing the Bank of England with plenty of challenges.
It remains to be seen whether the GBP/USD spread betting market can get back to last year’s highs in the $1.6400 area.
US Indices Spread Trading Update
Dow Jones Pushes Through 12,000
Although our own FTSE 100 found progress tricky for much of January, it wasn’t the case across the pond. The Dow Jones Industrial Index continued to build on gains after the Santa rally and by the last week of the month had traded through 12,000.
Since July last year there has been plenty of appetite to buy into any short term weakness for the US index.
Of course, some investors have taken the view that the actions of the Federal Reserve, with its quantitative easing programme, have provided a somewhat artificial security blanket, but going into February this is a market that still appears strong.
The above comments do not constitute investment advice and neither IG Index nor Clean Financial accept any responsibility for any use that may be made of them.
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'Forex, Sterling and Dow Jones Futures Trading - Monthly Review January 2011' edited by IG Index, updated 07-Feb-11
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