An Action Packed Week Ahead

With the holiday period drawing to an end, markets brace for an eventful week ahead, with the BoE monetary policy meeting this week expected to draw attention as the BoE Governor remains in the minority which advocates the resumption of asset purchases. With UK manufacturing PMI showing a marginal improvement, other PMI releases during the week may have an influence on policymakers’ stance. Dismal manufacturing data from the US yesterday dampened the possibility of an early withdrawal of the current monetary stimulus. However, Friday’s non-farm payrolls report is likely to garner most of market attention. Eurozone unemployment and German inflation figures remain key features on today’s economic calendar.

Pound Sterling – UK Markets

The Pound managed to gain traction against the US Dollar in yesterday’s trading session, as weak US manufacturing data fuelled speculation that the Fed would continue with its easing stance for a longer than expected period. In today’s trading session, data out just now has revealed a slight uptick in manufacturing activity in the UK economy, though it still remains in contraction. Meanwhile, in line with the BBA report, today’s data showed that mortgage approvals declined for February. Despite the sluggish economic recovery in the UK, the BCC has offered some respite, as it indicated that the British economy would manage to avoid a triple dip recession underpinned by the robust performance of services activity and buoyant exports due to a weaker currency. Furthermore, Lloyds business barometer surged for March, thereby signalling growing confidence among British firms. In this context, construction PMI due tomorrow and services PMI on Thursday will be closely tracked to decode whether the UK managed to escape contraction this quarter. The BoE’s monetary policy meeting later this week also holds significance for the near term dynamics of the Pound.

US Dollar – US Markets

Investors flocked to high yield currencies after data released yesterday showed that the pace of expansion in the US manufacturing sector unexpectedly slowed for March. The US Dollar declined against the Euro and the Pound, as dismal manufacturing data raised speculation that the Fed would be compelled to continue with its easing stance for a longer than anticipated period. Moreover, data last week revealed an unexpected rise in initial jobless claims, thereby highlighting that the labour market is still not out of the woods. Against this backdrop, non-farm payrolls data due later in the week would be closely eyed for insights into the Fed’s future monetary policy moves. An upward revision to the US fourth quarter economic growth last Thursday pacified some concerns surrounding the US economy. Moreover, the Reuters/Michigan consumer confidence index climbed more than expected for March, suggesting that markets have taken in stride the recent spending cuts announced by the US government. With durable goods orders surpassing estimates last week, factory orders data due later today is likely to be keenly eyed and is expected to show a rebound for February.

Euro – European Markets

The single currency is trading close to yesterday’s highs against the US Dollar this morning after weaker than expected ISM manufacturing data stoked speculation that the Fed would not rush to dismantle its ultra loose stimulus programme. Moreover, no sign of disorder was witnessed when Cypriot banks resumed operations last week. However, the Eurozone economy showed no signs of revival, as PMI releases from Germany, France and Eurozone indicated that manufacturing activity continued to remain in contraction territory for March. Against this backdrop, market participants are keeping a close eye on unemployment data scheduled for release later today for further cues on the region’s recovery. Additionally, today’s German consumer price inflation data ahead of Eurozone consumer inflation data due tomorrow would be closely watched for insights into the ECB’s future monetary policy stance. With the region’s economy registering sluggish growth, the ECB monetary policy meeting due this week would remain a key event on cards to gauge whether the central bank plans to loosen interest rates further in order to support the ailing economy.

Other Currencies – Highlights

The Australian Dollar has nudged higher against its major peers in today’s trading session after the Reserve Bank of Australia decided to keep the interest rate unchanged at 3%. Besides, the central bank offered no hints on whether a reduction in the benchmark interest rate may be required soon. However, overnight data indicated that manufacturing activity in Australia slipped further into contraction amid weakness in the construction sector and lower exports. In this context, services PMI, new home sales and trade balance data due tomorrow is expected to garner market attention for further insights into the state of the nation’s economy. Moreover, global manufacturing growth also remains anaemic, as recent PMI indicators from China and the US have shown signs of a slowdown in the manufacturing sector. With a light economic calendar today, news emanating from overseas markets is likely to have a bearing on risk appetite.