Fed’s Upbeat Tone

Yesterday, the US Federal Reserve’s (Fed) positive assessment of the economy, even as it reiterated its pledge to keep interest rates near zero through late 2014, dented hopes of additional stimulus measures. Additionally, the recent upbeat US economic data, coupled with signs of improved capital positions at large US banks, has further supported risk sentiment. In this morning’s trading session, markets keenly await Eurozone consumer price inflation data and the Fed Chairman, Ben S. Bernanke’s speech due later today. In the UK, data just released indicates that jobless claims rose more-than-expected for February, while the unemployment rate remained unchanged for January.

Pound Sterling – UK Markets

The Pound has maintained its position against the Euro this morning. Yesterday, Sterling moved higher against the Euro as fears surrounding the British housing sector receded, after Royal Institution of Chartered Surveyors revealed that house prices in the UK fell at their slowest pace since July 2010 for February, while expectations for future house prices were more optimistic during the month. Confirming the trend, the Department for Communities and Local Government indicated that home prices in the UK continued to rise for January. Additionally, yesterday’s data indicated a narrower-than-expected trade deficit for January. Meanwhile, data just released indicates that jobless claims seekers in the UK rose more-than-expected for February, while the unemployment rate remained unchanged at 8.4% for January. This has started to pressurise the Pound against the majors.

US Dollar – US Markets

The US Dollar has declined against the Pound, while it is trading steady against the Euro. Yesterday, the Fed boosted its assessment of the US economy on the back of recovery in the labour market. The central bank’s reiteration of its interest rate target to remain near zero until at least late 2014 and the decision to refrain from any further steps to boost recovery was broadly in line with market expectations. Highlighting the resilience in the financial system, the Fed revealed that majority of large banks had passed its recession scenario stress tests and have adequate capital to withstand an adverse scenario. On the macro front, data indicated robust retail sales for February, coupled with a better-than-expected rise in business inventories. With current account and import price index data being the only releases on deck today, markets keenly await a speech by the Fed Chairman, Ben S. Bernanke.

Euro – European Markets

The Euro has failed to register meaningful gains against the US Dollar this morning as market speculation of further easing in the US economy faded after the Fed raised its assessment of the economy. Additionally, Mario Draghi, the ECB President, cautioned that growing current account imbalances in the Eurozone is a threat and should be a source of key concern for policy makers. Yesterday, the much awaited German and Eurozone economic sentiment indices registered sharp gains. The German Chancellor, Angela Merkel, opined that European efforts to resolve the debt crisis are making progress, even as “imbalances” in the bloc indicate that the task is far from complete. In today’s trading session, markets await Eurozone industrial production and consumer price inflation data due later today. Markets expect inflation to register an uptick amid rising crude oil prices and following the ECB’s upward revision of its inflation target for the current year.

Other Currencies – Highlights

The Japanese Yen has declined against its major counterparts amid concerns about the health of the domestic economy. Data released earlier today indicated that large manufacturers’ business sentiment worsened for the first quarter. Another set of data revealed that industrial production growth slowed for January, while machine tool orders declined sharply for February. Yesterday, the Bank of Japan (BoJ) Governor, Masaaki Shirakawa, indicated that the central bank would continue to undertake measures to counter deflationary concerns. Meanwhile, the BoJ, in its monetary policy meeting, left its interest rate and asset purchase target unchanged.