UK Heads into 2014 with Improved Momentum

After a rather disappointing beginning, the year is set to end on a positive note with major global economies more or less recovering from a prolonged economic crisis. Britain leads the way on this front and the vastly improved domestic economic scenario, mainly after the BoE adopted forward guidance mid-year, is expected to carry on during the next year. Across the Atlantic, the nation seems to have recovered from the government shutdown in October, with the Fed scaling down its QE3 programme citing an improving economy in its last meeting of the year earlier this month. In the Euro zone, encouraging economic data from the peripheral economies lately, together with the overall upbeat sentiment has raised hopes of a steady recovery in the months ahead.

Pound Sterling – UK Markets

Sterling breached the 1.65 mark once again against the US Dollar yesterday, largely tracking downbeat economic data emerging from across the Atlantic. However, the Pound nudged lower against the single currency yesterday amid improving Euro zone sentiment and increased demand for the Euro. Little domestic economic activity, on account of the festive mood, has muted the Pound’s gains against the greenback of late. The Pound has recovered from its early morning lows today and is trading above the 1.65 level against the US Dollar. Meanwhile, the just released Lloyds Bank business barometer showed that confidence levels waned for December. However, the report had little effect on Sterling, which has continued to tread higher against the greenback. With no more domestic economic data scheduled for release today, Sterling investors will closely follow US macro releases later in the day for further direction to risk appetite.

US Dollar – US Markets

The weaker than expected November US pending home sales numbers hampered the greenback against the Euro yesterday. Although pending home sales increased for the first time in the past six months, the less than expected rise highlights the fact that higher mortgage rates continue to drag on recovery in the housing market. Against this backdrop, today’s S&P/Case-Shiller home price index print will be keenly eyed by investors for further insights into the US housing market. Additionally, the upbeat Dallas Fed manufacturing index report has added further credibility to the notion that economic recovery in the world’s largest economy is on track. Meanwhile, the greenback is trading higher against the single currency this morning. Apart from the housing sector report, the domestic consumer confidence print, which is expected to show a healthy improvement heading into the New Year, will also attract investors’ attention today. Additionally, the Chicago PMI report will be closely followed by investors in the session ahead.

Euro – European Markets

The Euro continued to build on its recent gains against the US Dollar yesterday, as the combination of positive Spanish retail sales numbers and the weak US economic data weighed on the greenback and underpinned demand for the common currency. The single currency was further supported by the Greek Prime Minister, Antonis Samaras’ comments that Greece will exit the EU-IMF bailout programme in 2014 and that the nation will not require another bailout programme from next year onwards. Greece will be the second nation to exit the bailout deal after Ireland left its bailout programme earlier this month, signalling that the currency bloc’s economic recovery will not be driven by Germany alone in the year ahead. Meanwhile, the Euro has nudged lower against the US Dollar in a relatively thin trading session this morning. With no major domestic economic releases on tap, investors will keep a tab on the Greek retail sales report today. However, important macro indicators from across the Atlantic will drive trading sentiment in the Euro-US Dollar pair in today’s trading session.

Other Currencies – Highlights

The Australian Dollar has nudged higher against the majors this morning, despite the lower than expected Australian private sector credit data. The Aussie Dollar also remained supported against the greenback yesterday after weaker than expected US pending home sales data dampened investor sentiment toward the US Dollar. With little on the domestic macro front to alter market sentiment, investors in the Australian Dollar will closely scrutinise the US macro releases today for further direction. Looking ahead, Thursday’s domestic manufacturing report will gain considerable market interest, especially in the aftermath of last month’s numbers which showed a contraction in the Australian manufacturing sector activity. Additionally, the Chinese manufacturing PMI reports along with PMI prints from across the globe will prove crucial for the Aussie Dollar against the majors in the coming sessions.