UK Edges Away from Brink

As the European central bankers prepare to take centre stage today, traders expect both the BoE and the ECB to adopt a status quo monetary stance. Markets would try to decode whether Mark Carney has some other monetary policy tools at his disposal to revive Britain’s flagging economy when he testifies before the Treasury Select Committee later today. Similar interest is expected at Mario Draghi’s post-meeting press conference which will be deciphered for his views on the recent strengthening of the Euro. Market participants expect a pretty volatile trading session today which will be further accentuated by Spanish bond auctions and US jobless claims data.

Pound Sterling – UK Markets

The Pound is trading higher against the Euro this morning, in reaction to positive Industrial Production and manufacturing data which may allay fears of a looming triple dip recession. It remains to be seen what steps policy makers are likely to adopt in the near term. Additionally, the incoming Governor, Mark Carney’s testimony to the Treasury Select Committee will be closely watched for his views on whether the current monetary policy framework in the UK is appropriate to revive the domestic economy. With Carney striking a dovish tone in his prior commentaries, it will be interesting to see how he tackles questions from British MPs in a way that satisfies the UK Chancellor, while at the same time avoid distancing himself from the monetary policy committee. Meanwhile, both industrial activity and trade balance data just released has surprised traders on the upside. This should provide some support to the Pound against the majors. Apart from today’s NIESR GDP data, it will be keenly watched whether Mark Carney reiterates his stance for further monetary easing measures before the UK Parliament, as it could further pressurise the Pound.

US Dollar – US Markets

Amid lack of domestic macro triggers in the US yesterday, the greenback strengthened against the single currency as events unfolding in peripheral Eurozone economies dented risk appetite among traders, prompting them to seek shelter in the safe haven currency. However, it has pared some of its gains in today’s trading session. Meanwhile, the US House Speaker, John Boehner, bluntly objected to the US President’s proposal of a delay in spending cuts stating that it would be given a “go ahead” if it is replaced with other cuts and reforms. In the midst of ongoing political stalemate, it remains to be seen what measures US lawmakers are likely to adopt going forward to delay $1.2 trillion in automatic US spending cuts set to begin from 1 March 2013. On the domestic economic front today, weekly initial jobless claims in the US will probably show a decline for the last week, providing more evidence for expecting modest growth in the labour market. Consumer credit data is also on market radar today and is expected to throw some light on whether the deleveraging cycle has begun in the US.

Euro – European Markets

The Euro has shed early gains against the Pound but is trading higher against the greenback this morning. In today’s trading session, the ECB monetary policy meeting is likely to prove a non-event, though traders would be all ears to the ECB President, Mario Draghi’s post-meeting press conference wherein he would air his views on the current state of the region’s economy. He is also expected to be grilled on his alleged involvement in an Italian bank scandal. Meanwhile, the French President’s call for a strong foreign exchange policy to lower fluctuations in the single currency has gained limelight, as Greek Finance Minister opined that high level of the Euro is proving detrimental to the nation’s economy. Apart from the ECB meeting and Draghi’s speech, markets are expected to pay a passing attention to the European Commission’s economic growth forecast and German industrial production scheduled for release later today. Moreover, in the midst of ongoing political uncertainty in Spain and rising bond yields, the nation’s ability to successfully complete its bond auctions today, while keeping a cap on yields, would be tested.

Other Currencies – Highlights

The Australian Dollar is trading on a firmer footing against the US Dollar this morning buoyed by upbeat jobs report. Data released earlier today showed that unemployment rate in Australia eased more than expected for January. This indeed should provide some relief to the Reserve Bank of Australia which had dubbed the labour market as weak at its recent monetary policy meeting. The central bank had held its key interest rate unchanged at 3%. However, with a stable inflation outlook in Australia, a rate cut from the central bank cannot be ruled out given the assessment of the Governor, Glenn Stevens that the economy will likely expand “a little below trend” this year. With little on the domestic economic calendar during the week, the Aussie Dollar is likely to track European cues today for further direction. Additionally, Chinese trade data due early tomorrow could have some bearing on the risk appetite among investors.