Though, mild weather in October affected retail sales at home, volumes were still higher compared to a year earlier, indicating increased consumer confidence and a consumer driven economic recovery. However, risk appetite continued to struggle against a background of weak confidence levels released early today. However, domestic annual growth rate in the third quarter surprised markets, although government borrowings rose considerably for November.
In the US, rising jobless claims numbers dented the notion of an improvement in labour market and if economic data in the coming days continues to show significant weakness, questions may arise about the timing of the Fed’s taper decision. In the Euro zone, today’s consumer confidence report will be closely watched, especially in wake of the upbeat sentiment indices of late.
Pound Sterling – UK Markets
Sterling traders searched for direction against the US Dollar yesterday as weaker than expected UK retail sales numbers together with renewed demand for the greenback weighed on the Pound-US Dollar pair. Retail sales in Britain picked up for December as colder weather boosted sales of warm clothing, but fell short of market expectations. Additionally, improved sentiment towards the greenback following the Fed’s QE3 tapering decision dragged the Pound lower.
Meanwhile, Sterling has continued to weaken against the majors this morning after the overnight domestic consumer confidence report showed declining consumer sentiment for the second consecutive month. Even though the just out revised annual third quarter UK GDP report surprised markets on the upside, Sterling has failed to gain traction against the greenback. Additionally, the UK government borrowings climbed significantly higher for November. With no domestic economic data on tap today, Sterling investors will closely follow macro releases from across the Atlantic for further direction to risk appetite in the session ahead. Moving ahead, a light economic calendar is on radar, in the wake of holidays during next week.
US Dollar – US Markets
The US Dollar continued to trade higher against its peers, a day after the Fed rolled out its QE3 tapering programme. However, the weak set of macro-economic data capped the greenback’s gains yesterday. The number of people claiming jobless benefits unexpectedly rose to the highest level in nearly nine months for the last week, casting doubts over the recovery in the labour market. Likewise, higher mortgage rates continue to weigh on the domestic housing market as existing home sales dropped for the third consecutive month to the lowest level in nearly a year for November, while the Philadelphia Fed manufacturing index registered modest growth for December, highlighting the overall weak economic sentiment prevailing in the world’s largest economy.
The greenback has edged up further against the majors in today’s trading session ahead of the release of final domestic GDP print later today which is unlikely to show much deviation from its previous reading. Additionally, investors will eye the Kansas Fed manufacturing activity index for cues on the nation’s manufacturing sector. In the forthcoming week, a slew of domestic economic data will be eyed by investors for further direction.
Euro – European Markets
Despite upbeat sentiment indices from Germany and France released earlier in the day, the common currency has failed to gain traction against the US Dollar this morning. Following positive German ZEW and Ifo survey prints, consumer sentiment surprisingly improved for January, signalling a pickup in the nation’s economic activity going forward. Against this backdrop, market participants will pay close attention to the Euro zone consumer confidence print later today for further direction. Furthermore, French business confidence also showed a better than expected improvement for December.
Meanwhile, after days of strengthening the single currency weakened sharply against the greenback yesterday, as the QE3 scaling down decision underpinned demand for the US Dollar, while weighing on the demand for riskier assets. Apart from the domestic consumer sentiment numbers, the US third quarter GDP report today will determine movement in the Euro-US Dollar pair in the session ahead. With little on the domestic macro front in the forthcoming week, investors will keep a tab on global economic news flows for further direction.
Other Currencies – Highlights
The downward trend in the Japanese Yen lately has continued this morning after the Bank of Japan maintained status quo on its policy stance while reinforcing that the nation’s economy continues to recover at a moderate pace. The central bank also stated that despite the drag from the sales tax hike and high uncertainties over global growth, the economy will continue to strengthen in the coming months. Additionally, the weakness in the Yen was further compounded after the Fed decided to partially pull the plug on its ultra loose policy stance, thereby strengthening the greenback.
With no domestic economic data on tap, news flows emanating from the US will prove crucial for the Japanese Yen against the greenback today. Looking ahead, a string of important domestic economic data, especially, the minutes of the Bank of Japan’s policy meeting and consumer price inflation report, will attract considerable market attention in the week ahead.
Sterling Rises Sharply on Renewed Hopes of the UK Leaving With a Deal
Dollar Rises Modestly on FOMC Minutes
Sterling Rises on Hopes of EU Softening Tone on Backstop