German Data Reinforces Sentiment

Yesterday’s BoE minutes, which have weighed heavily on the pound, indicated a split in voting on the size of additional asset purchases, fuelling market speculation that the central bank may resort to further easing measures in the future. To compound the sterling/euro position, data just released indicates a better-than-expected improvement in the keenly awaited German IFO business climate index for February. Weak PMI data in the Eurozone, coupled with a Fitch downgrade of Greece, did not have any impact on the Euro yesterday. Markets are now eyeing a heavy economic calendar in the US today for further direction.

Pound Sterling – UK Markets

The pound is trading lower against the euro following upbeat German business confidence data. However, it has managed to eke out marginal gains against the US dollar. Yesterday, sterling was under pressure against the majors after minutes of the BoE’s latest policy meeting stole the show from the recent UK data, which suggested upbeat growth momentum. The minutes of the meeting indicated that seven of the nine MPC members agreed for an additional injection of £50 billion, while Adam Posen and David Miles voted for £75 billion of quantitative easing. The minutes also showed that two committee members actually voted for no QE at all, but this seems to have passed investors by and the subsequent large sterling sell-off is puzzling. Regardless, if you are looking to sell the euro and purchase sterling, current trading levels shouldn’t be ignored. On the macro front, market participants are keeping a close eye on CBI industrial trends-orders survey for February due later today. Data just released indicates that BBA loans for house purchases rose for January.

US Dollar – US Markets

The US dollar has weakened against the majors this morning as risk appetite improved, after data indicated that German business confidence climbed to the highest level in seven months for February. Market speculation that Chinese Premier, Wen Jiabao, may pare the nation’s 2012 growth target next month seems to have been taken into stride by traders. Yesterday, data indicating weak manufacturing activity across the major global economies, and Fitch Ratings warning of a possible Greek default, provided some support to the greenback. Additionally, data indicated an uptrend in the US housing market, with existing home sales climbing to a twenty-month high for January. The slew of economic releases today includes initial jobless claims, house price index and the Kansas City Fed manufacturing activity index.

Euro – European Markets

Following yesterday’s weak PMI data in the Eurozone, the euro has managed to rebound against the US Dollar this morning on the back of better-than-expected German Ifo business climate data for February. Additionally, traders remain optimistic ahead of the second LTRO due next week. Crossing another hurdle, Greece's new bailout legislation was approved by the Parliament’s economic affairs committee. However, the Greek bailout deal has failed to rescue the nation’s sovereign debt ratings from another downgrade. Yesterday, Fitch cut its rating on Greece by two notches to “C” from “CCC” and warned of high possibility of a default in the near term. The Institute of International Finance, in its February global economic monitor, has opined that a systematic resolution of the Greek debt crisis “remains a key challenge”.

Other Currencies – Highlights

The Aussie dollar has gained against the major currencies on higher risk appetite among traders, after data showed that German business sentiment climbed for a fourth consecutive month for February. However, in the initial trading session, the Aussie dollar traded weak, amid resurgent leadership tensions in Australia. The nation’s Prime Minster, Julia Gillard, called for a leadership ballot on 27 February 2012, following the resignation of foreign minister, Kevin Rudd. Additionally, today’s data indicating a less-than-expected rise in Australian average weekly wages for the three months ended November, painted a bleak picture of the labour market.