Recent Eurozone economic data releases, except for sentiment surveys, have revealed little about the prospects of the currency bloc’s economic recovery gaining steam. However, the ECB (European Central Bank) President, Mario Draghi remained positive about the region’s economy, dampening hopes of further interest rate cuts in the near future.
At home, supportive government policies continue to propel house prices higher, ahead of the BoE measures to rein in the housing market taking effect next year.
Across the Atlantic, with the Fed acting positively, the world’s largest economy has shown signs of recovering from its economic crisis and today’s pending home sales data will be closely eyed for further evidence about the same.
Pound Sterling – UK Markets
Riding on the wave of progressively improving sentiment towards the economy lately, the Pound breached the 1.65 level (GBP/USD), climbing to over a two-year high against the greenback on Friday. However, with the UK's economic data releases becoming sparse over the afternoon, Sterling was unable to sustain its upward momentum, closing below the 1.65 mark against the US Dollar. The steadily expanding UK economy, strong manufacturing and services sectors, largely stable inflation, improving labour market conditions and positive retail sales numbers, together with the strength shown by the housing market over the past few months has boosted expectations of broad and sustained growth during the coming months.
Meanwhile, Sterling is trading in a tight range against the US Dollar in today’s trading session. A report released by Hometrack earlier today showed that house prices in the UK continue to climb higher, with expectations of a further rise in the near term. With little on the major data front during the week ahead for the, Sterling investors will closely follow the domestic manufacturing and construction PMI reports (measure of business conditions) and important US economic data for further direction.
US Dollar – US Markets
Despite the recent positivity surrounding the US economic recovery, the greenback continued to weaken against both the Euro and the Pound on Friday. The US Dollar has failed to make any meaningful gains against the majors of late, despite the Congress budget agreement and beginning of QE3 tapering by the Fed earlier this month. The largely mixed domestic economic data and profit taking by traders along with demand for the Euro has also added to the greenback’s losses recently.
However, the US Dollar has nudged higher against the Euro in today’s trading session ahead of the release of the US pending home sales report later today which is expected to show an improvement for November and may offer support to the greenback in the session ahead. Additionally, investors will also keep a tab on the Dallas Fed Manufacturing Index for further direction. Looking ahead, the domestic consumer confidence and the Manufacturing PMI reports later this week will give further insights into the nation’s growth during the last quarter of 2013.
Euro – European Markets
The single currency continued to strengthen against the greenback on Friday but pared back some of its early gains later in the day. Meanwhile, the ECB President, Mario Draghi has rebuffed the prospect of a Japan-like deflation in the Euro zone while stating that encouraging signs of economic recovery do not warrant further interest rate cuts in the near future. Moving forward, a slew of manufacturing PMI reports across the Euro zone will drive trading sentiment in the Euro-US Dollar pair in the week ahead.
The Euro failed to sustain its Friday’s upward momentum against the US Dollar this morning, but has recovered some of its earlier losses after the release of mixed economic data from Spain and Italy. While Spanish retail sales rose substantially for November, business confidence in Italy improved less than forecast for December, indicating that the currency bloc’s third and fourth largest economies are on the path to further build on their buoyant third quarter GDP numbers in the final quarter of 2013.
Other Currencies – Highlights
The Canadian Dollar is trading under pressure against its US counterpart this morning as the Fed's decision to scale down its massive asset purchase programme earlier this month continues to weaken the Canadian Dollar. Additionally, the Bank of Canada's soft stance regarding the domestic economy and its Governor, Stephen Poloz’s statement that the central bank is unlikely to hike interest rates in the near term has further added to the Canadian Dollar’s woes against the majors recently. The BoC Governor’s comments were based on the latest domestic consumer price inflation and retail sales reports that painted a grim picture of the nation’s economic outlook.
In the absence of any domestic economic data, the Canadian Dollar is expected to take direction from the slew of US data releases during the week.
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Euro and Pound Sterling Recover Modestly on Friday
The US Dollar Rallies on Upbeat Data and Hawkish Fed Stance