The UK housing market continues to show little signs of a slowdown, as demand continues to outstrip supply, thereby propelling property prices higher. Although the BoE has stepped in to subdue the brewing housing bubble, the impact of these measures will only be visible next year. Investors will continue looking forward to important economic data during the week for further direction. Meanwhile, less dovish comments from the ECB Chief last week continue to support the Euro, despite the just released downbeat investor confidence reading.
Across the Atlantic, the string of buoyant economic releases over the past week has raised belief that the US economy remains firmly on the path of recovery and is well poised to deal with the withdrawal of the Fed’s monetary stimulus.
Pound Sterling – UK Markets
After briefly moving higher against the majors, the Pound took a breather against both the US Dollar and the Euro on Friday, following a raft of upbeat US economic data releases. At home, the housing market continues to exhibit strength as pointed out by the latest Halifax housing survey, which showed that house prices in the UK rose at the fastest annual rate in six years for November. Meanwhile, a report from the BoE indicated that inflation expectations over the next year have increased in the UK, while more than one in three Britons expect the central bank to raise interest rates next year.
The Pound is trading on a stronger footing against the majors in today’s trading session. With little on the domestic macro front to trigger risk appetite, market participants are looking ahead to a speech by the BoE Governor, Mark Carney, for insights into the central bank’s policy stance going forward. Additionally, Sterling investors will track important global macro releases and speeches by Fed officials later today for further direction.
US Dollar – US Markets
Positive reaction to the upbeat US labour market and consumer sentiment report on Friday suggests that the markets are likely pricing in the effects of a Fed taper, expected next month or early next year. Investors booked gains in the greenback on Friday, even as the US non-farm payrolls numbers for November beat analysts’ forecasts. The US unemployment rate also nudged lower to 7% for November, its lowest level in five years. Additionally, upbeat consumer sentiment and a pickup in consumer spending point towards a shift to a broad based recovery in the US in the near term, thereby raising hopes of QE3 tapering sooner than envisaged. However, Charles Evans, the Chicago Fed President, has opined that the central bank must wait for “a couple of months of good numbers” before scaling back its bond purchases.
Meanwhile, the greenback has continued to trade lower against the majors this morning ahead of speeches by influential FOMC policymakers later today. After a barrage of important domestic economic releases last week, market participants will have it easy in terms of macro-economic data this week.
Euro – European Markets
Tracking economic news flows from the US, the common currency strengthened against its peers on Friday, despite the US reporting upbeat labour market and consumer sentiment numbers. The ECB’s decision to refrain from introducing additional stimulus at its recent policy meeting last week continue to support the Euro. Meanwhile, German economic data continues to confound markets over the state of the Euro zone’s largest economy and Friday’s downbeat factory orders report, coupled with today’s mixed trade numbers, have only added to the market uncertainty. In this context, today’s German industrial output report will by eyed by investors to get a clearer picture of the nation’s economic progress.
Meanwhile, the single currency has built on Friday’s upward momentum against the greenback this morning, despite the just out surprisingly dismal Euro zone investor sentiment numbers. Apart from the German factory data, speeches by Fed officials will drive the Euro’s movement against the greenback in the session ahead.
Other Currencies – Highlights
The Japanese Yen’s losing streak against the majors lately has continued this morning following the release of the downwardly revised third quarter domestic GDP numbers, which indicated that the Japanese economic recovery continues to face headwinds, despite its loose monetary policy. Additionally, the nation’s current account unexpectedly swung to a deficit, largely on the back of an oversized trade deficit. The weak economic data has once against highlighted the credibility of the nations’ aggressive easing measures, with rising concerns about the effects that the hike in sales tax will have on the economy. However, losses in the Yen were capped after a report showed that the outlook for the Japanese economy remains positive.
With little on the domestic economic calendar, the Yen will take direction from a host of global economic news flows today. Investors in the Yen will keep a tab on the domestic consumer confidence report tomorrow, along with the slew of other domestic and international economic data during the week for further direction to risk appetite.
BoE less likely to increase interest rates in May
UK’s CPI figure in spotlight, as the Pound value drops
Sterling slumps after lower than expected CPI results