Euro zone in the Pink

The recent call for an early withdrawal of monetary stimulus in the US appears to have faded after data showed an unexpected jump in the US unemployment rate for January. Meanwhile, upbeat ISM manufacturing data from the US proved beneficial for the Euro in Friday’s session. With the UK’s manufacturing and construction data painting a dismal picture, tomorrow’s services figures will hold the key to gauge the performance of the overall economy at the start of 2013. Meanwhile, confidence over a recovery in Europe continues to grow, as data revealed an uptick in the Eurozone investor confidence. Against this backdrop, it would be interesting to keep an eye on the BoE and the ECB monetary policy meetings slated later this week.

Pound Sterling – UK Markets

The Pound has recovered some of its recent losses against the Euro and is trading higher in today trading session, ahead of a key set of domestic cues slated for release during the course of the week. Continuing with the recent trend of weak economic data from the UK economy, data from Lloyds showed that business sentiment in the UK declined for January. In sync with the last week’s disappointing manufacturing data, today’s PMI data indicated that construction activity in the UK remained weak last month. Tomorrow’s services data will be closely scrutinised for a holistic view about the UK economy. Against the backdrop of the weak GDP figures and the recent dismal economic data, the BoE’s monetary policy meeting due later in the week will hold market interest. Incoming BoE Governor, Mark Carney’s address to the Treasury Select Committee on Thursday will also be followed closely for clarity on the monetary policy stance that the succeeding Governor plans to adopt during his tenure. Meanwhile, in the absence of major domestic news today, markets would likely monitor cues from overseas market for further direction.

US Dollar – US Markets

The greenback has retraced most of its losses against the single currency in today’s session, as traders await crucial overseas cues during this weekly session. However, an early withdrawal of the current monetary stimulus appears a distant reality, as the labour market report poured cold water on hopes that the US labour market is gaining traction. Data released on Friday indicated that non-farm payrolls rose less than expected, while the unemployment rate unexpectedly rose to 7.9% for January. The ISM manufacturing index registered a second consecutive month of expansion, thereby validating the recent data which showed a pickup in orders for durable goods. Additionally, data from the University of Michigan indicated an improvement in the US consumer confidence, sharply in contrast to the Conference Board’s data released earlier last week. Apart from today’s factory orders figures, the ISM non-manufacturing index and consumer credit data due later this week are likely to hold the key to determine the near term dynamics for the US Dollar.

Euro – European Markets

The Euro inched higher against the US Dollar and moved close to the 1.37 mark in Friday’s session, amid speculation that the Fed would continue with its monetary easing stance for a longer than expected period. However, the single currency has slipped close to the 1.36 mark against the greenback this morning, partly attributable to profit booking by traders following the recent decent run in the Euro. Additionally, concerns still linger in the Euro-area, stemming from instability in the Italian and Spanish political situation. Moreover, the ECB expects to receive €3.5 billion of LTRO repayments this week, far less than the total repayments seen last week. On the domestic front, confidence among market participants over the state of the Eurozone’s economy continued to improve, as data revealed an improvement in Sentix investor confidence for the current month. This comes on the back of Friday’s encouraging manufacturing and unemployment data in the Eurozone. Today, the Spanish Prime Minister’s meeting with the German Chancellor would be a closely watched event to gain further insights into the changing economic and political landscape in Spain.

Other Currencies – Highlights

The Aussie Dollar is trading marginally higher against US Dollar this morning, as the Reserve Bank of Australia, in its monetary policy meeting, slated tomorrow is expected to leave its benchmark interest rate unchanged at 3%. Market participants attribute this unchanged stance to the recent recovery in the Chinese economy which has continued to brighten the prospect for the Australian economy. Additionally, a private survey indicating a rise in Australian consumer price inflation for January has made rate cut a difficult proposition for the central bank. However, data from the Australian Bureau of Statistics revealed an unexpected monthly slide in building approvals for December. On the macro front, this week’s labour market data in Australia has the potential to dictate the near term direction of the Aussie Dollar. Besides, retail sales and trade balance data scheduled this week will also be watched closely for further insights into the domestic economic trends.