UK Consumers Lead the Way

Following yesterday’s dismal domestic jobs report, markets have found some solace in the consumer confidence data for January released earlier today, which rose to the highest level in five months. Additionally, the much awaited quarterly inflation report from the BoE portrayed a less dovish picture for the economy, thereby dampening prospects for further stimulus. Moody’s warning on ratings for several European banks, coupled with continued worries over progress on Greece, have further aided to keep Sterling buoyant against the Euro in today’s trading. Meanwhile, French and Spanish bond auctions are on traders’ radar today.

Pound Sterling – UK Markets

The Pound is trading above the 1.20 mark against the Euro after data released earlier this morning indicated that the nationwide consumer confidence index for January rose to the highest level in five months. Moreover, clouds of uncertainty engulfing Europe also favoured the Pound against Sterling. Yesterday, an upward revision to the BoE’s two year inflation forecast dampened expectations of further easing and lent support to the currency. However, gains were muted after Governor, Mervyn King, cautioned that the British economy is on a slow and gradual path to recovery and will be seen dipping in and out of growth in 2012. Yesterday’s unemployment data is pointing towards a weak labour market after claimant counts rose more-than-expected for January. With no significant economic releases on tap today, the Pound is expected to track developments in Europe and macro indicators in the US for further direction.

US Dollar – US Markets

The delay over the Greek bailout deal, coupled with Moody’s warning of a possible downgrade of global banks, has triggered risk aversion and sent the US Dollar higher against the majors this morning. Moreover, waning prospects of additional easing in the US provided further boost to the currency. The minutes of the Federal Reserve’s last policy meeting indicated little backing for QE3, with a majority of members opining that further easing could be warranted only if the economy lost momentum, or if inflation seemed likely to stay below the 2% target for the longer term. Echoing the sentiment, Dallas Fed President, Richard Fisher, dismissed possibilities of a fresh round of stimulus, calling it a “fantasy”. An eventful day in terms of economic releases awaits investors. The Philadelphia Fed manufacturing survey, NAHB housing index, producer price inflation and initial jobless claims are set to provide insights on the wider economic landscape.

Euro – European Markets

The Euro is close to dipping below the 1.30 level against the US Dollar, following Moody’s warning over possible credit rating downgrades of global banks and amid concerns over an elusive Greek bailout deal. Reports suggest that Eurozone officials may delay the second bailout for Greece until the national election. Additionally, yesterday’s data indicating a contraction in Eurozone GDP for the fourth quarter and Italy slipping into recession, added to fears. However, in a move to alleviate concern, Jean-Claude Juncker, the Eurogroup President, expressed confidence about reaching a conclusive decision on the Greek aid package by next week. Meanwhile, Spanish and French bond auctions, due later today, will aid traders to gauge the impact of negative news flows from Greece on the region’s borrowing costs.

Other Currencies – Highlights

The Kiwi Dollar has registered a sharp decline against the US Dollar this morning after New Zealand’s Treasury, in its budget policy statement, trimmed its GDP growth outlook for the year ending in March 2012 to 1.9%, compared to its previous estimate of a 2.3% growth. The Treasury further cast doubt over government's target of rebounding to budget surplus by 2014-15 amid mounting European debt woes. Moreover, data indicating a decline in New Zealand’s manufacturing activity for January and deteriorating consumer confidence for February, has further weighed on the trading sentiment towards the Kiwi Dollar. A subdued risk appetite is likely to weigh on the currency in today’s trading session.