Osborne Raises UK Growth Forecasts

The low-key BoE monetary policy meeting yesterday attracted little attention, even as Chancellor George Osborne expectantly raised the nation’s growth forecasts and outlined plans to attain sustained economic growth whilst reigning in the housing market. The ECB also stuck to its policy stance, downplaying the need to resorting to negative rates, but lowered its inflation forecasts for the forthcoming year, indicating that challenges for an economic recovery are likely to persist. Across the Atlantic, the unexpectedly upbeat GDP and initial jobless claims numbers has provided fresh evidence that nation’s economic recovery is gaining momentum. With the FOMC meeting this month on investors’ radar, today’s non-farm payrolls numbers will provide some guidance for the central bank’s stance on scaling back its record stimulus measures.

Pound Sterling – UK Markets

The Pound weakened against the majors yesterday following positive economic news flows from the US and the Euro zone. Meanwhile, on expected lines, the BoE left interest rates at the record low level. The UK Chancellor, George Osborne’s assurance in the Autumn Statement that the nation’s economic plan is working and recovery will continue through next year also failed to cheer Sterling investors. The UK Chancellor also raised the nation’s growth forecast to 1.4% and 2.4% for this year and next year respectively. Meanwhile, the OBR expects the unemployment rate to slide to 7% in 2015 and the fiscal deficit for the current year is projected to come in at 6.8%, compared to the previous forecast of 7.5% in March. Meanwhile, the Pound is trading higher against the majors this morning. Data released earlier today has shown that house prices in the UK cooled off marginally for November, although inflation expectations for the year ahead have firmed up. Looking ahead, Sterling investors will take a breather in the midst of a relatively light domestic economic calendar next week.

US Dollar – US Markets

An upward revision to the US third quarter GDP print and unexpected fall in jobless claims numbers lifted the gloom prevailing over the last few days and lifted the greenback higher against its peers, except the Euro yesterday. Less dovish comments by the ECB Chief, Mario Draghi, supported the Euro against the US Dollar. The US economy grew at a pace of 3.6% during the third quarter against estimates of 2.8%, with inventory accumulation, personal consumption expenditures and government spending contributing to the gains. Meanwhile, applications for employment benefits surprisingly fell to a two month low during the last week. However, Dallas Fed President, Richard Fisher, opined that the US jobless rate decline is “yet to be satisfactory”. Against this backdrop, today’s non-farm payrolls report will be closely scrutinised by investors and will help in ascertaining the Fed policy stance going forward. With an important economic day in the session ahead, the greenback is trading in a tight range against the majors this morning. Apart from the payrolls numbers, personal consumption expenditures report and the Reuters/Michigan consumer sentiment report will also gain market attention today, ahead of a relatively calm next week in terms of macro releases.

Euro – European Markets

The ECB refrained from loosening its monetary policy any further in its meeting yesterday, while reinforcing that policy will remain accommodative for as long as necessary. The single currency edged higher against its peers after the ECB President, Mario Draghi, played down the need for using negative rates as a policy tool in future, citing that it sees no reason to do so now. The upbeat US economic data released later in the day also failed to dampen investors’ enthusiasm towards the Euro, even as the common currency climbed to a five-week high against the greenback. However, the ECB lowered its 2014 inflation forecasts, with Draghi signaling that the Euro zone may experience a prolonged period of low inflation. Meanwhile, the Euro is trading range bound against the majors in today’s trading session ahead of the German factory orders report later today. Additionally, the all-important US labour market report today will determine trading sentiment in the Euro-US Dollar pair in the near term. Moving forward, a slew of German and Euro zone economic releases will keep investors on their toes during the next week.

Other Currencies – Highlights

The Swiss Franc has nudged higher against the majors this morning after the just out consumer price inflation report showed a surprise pickup in the inflationary trend in the country. The Franc also remained supported against the majors yesterday, despite a raft of positive economic data from the US and the Euro zone. With data this week largely presenting a positive outlook of the Swiss economy, speculation of the SNB raising interest rates have increased. With no major domestic economic data to trigger risk appetite, news flows emanating from across the Atlantic, especially the non-farm payrolls report will prove crucial for the Franc against the US Dollar today. In the forthcoming week, the SNB monetary policy meeting will be keenly followed by Franc investors, especially in the wake of positive macro data lately. Additionally, domestic retail sales and important global economic data will also drive the Franc’s movement against the majors during the next week.