Happier Times Ahead?

Data just out has revealed that the UK economy managed to pull itself out of the recession, broadly due to the positive influence of the London Olympics. An extra holiday in the previous quarter which had knocked off around 0.5% off economic growth also helped enhance the current growth. This should help in easing further QE speculation and provide a boost to the Pound against the majors. Meanwhile, the Fed maintained its current monetary policy stance and reaffirmed that the labour market would remain the key driver for future monetary policy decisions. Meanwhile, today’s durable goods orders is expected to set the stage for tomorrow’s GDP data from the US.

Pound Sterling – UK Markets

The Pound has rallied against the US Dollar and the Euro in today’s session, as data just released confirmed that the British economy has emerged out of the double dip recession, ending three quarters of contraction. The British economy registered a more than expected 1% sequential growth for the third quarter. However, leading indicators offered little evidence of the buoyancy remaining intact. Yesterday’s survey from CBI provided a grim picture, as industrial trends survey indicated that orders fell to their lowest level in ten months. The survey also showed that the manufacturing activity weakened, driven by weak export orders. With the BoE Governor, Mervyn King, hinting that the central bank’s next move remains a close call, today’s statements from the Deputy Governor, Paul Tucker, would be closely watched for more cues from the monetary policy front. With no major domestic releases scheduled during the week, traders are expected to keep an eye on news flow from both sides of the Atlantic for further direction.

US Dollar – US Markets

The Fed’s monetary policy meeting remained a passive affair, as the central bank left its benchmark interest rate unchanged at current levels and stuck to its plan to purchase $40 billion of mortgage backed securities every month. The central bank is expected to stick to its current monetary policy stance in the near future, as the FOMC indicated that growth in employment has been slow and the economic recovery “modest”. The US Dollar has declined against its peers in today’s session, as risk appetite among traders grew after China's Ministry of Industry and Information Technology indicated that the country's factory output should grow at a faster pace in the last three months of 2012 compared to the third quarter. A similar trend was visible in the latest manufacturing PMI reading from China. Meanwhile, traders are expected to keep a close watch on today’s durable goods orders data which is expected to lay the foundation for tomorrow’s GDP figures. The recent jobless claims figures have been volatile due to certain quarterly distortions and hence we expect today’s figures to offer a clearer picture of the labour market.

Euro – European Markets

The Euro has steadily climbed against the US Dollar this morning after the ECB President, Mario Draghi, offered a strong defence of the central bank’s recently undertaken Outright Monetary Transactions programme to the German Parliament. This has reaffirmed the perception that the ECB Chief would stay committed to taking the necessary initiatives to counter the debt crisis. However, the German economy continues to show signs of succumbing to the Eurozone debt troubles. The German manufacturing PMI slipped to the lowest since June 2009, while the German business confidence dropped for a sixth consecutive month to its lowest level since February 2010. With a light European economic calendar today, markets are expected to keep a close watch on economic indicators from the US for further direction. Additionally, news emanating from debt stricken countries such as Spain and Greece would also be closely tracked by traders for further cues.

Other Currencies – Highlights

The New Zealand Dollar has climbed against its major peers in today’s trading session after the Reserve Bank of New Zealand maintained its benchmark rate at current levels, in line with market expectations. The newly appointed central bank Governor, Graeme Wheeler, sounded slightly hawkish, as he stated that inflation is expected to accelerate and added that risks to the global outlook are “more balanced”. Moreover, concerns surrounding the Chinese economy have faded after the nation’s Ministry of Industry and Information Technology indicated that the pace of recovery in factory orders would be higher in the final quarter of the current year. Additionally, the latest HSBC manufacturing PMI reading offered signs of a recovery in the Chinese economy. Traders are expected stay focused on today’s trade balance figures from New Zealand in order to seek fresh cues about the trends in the island nation. Meanwhile, the Kiwi Dollar will also be influenced by the domestic business confidence indicator due for release tomorrow.