Both sides of the Atlantic have voiced similar strategies, with the ECB and the Fed showing their willingness to continue with their current monetary easing stance, providing some relief to high yield currencies today. Meanwhile, Italy continues to navigate through some uncharted waters after a relatively smooth auction yesterday helped restore market confidence, though it came at the expense of higher yields.
With little on the domestic front for Sterling investors today, a plethora of economic releases in the US - especially the GDP and jobless claims numbers - will be in prime focus. Markets will also look for any ice-breaking activities in the US political arena ahead of the fast approaching sequester deadline.
Pound Sterling – UK Markets
In the absence of major domestic news today, external cues once again played a pivotal role in determining the direction of the Pound, as it garnered traction against the US Dollar following reassuring comments from the Fed and the ECB Chiefs. Meanwhile, the BoE Deputy Governor, Charlie Bean, tried to calm market nerves as he dismissed the idea of the central bank introducing negative interest rates in near future.
On the macro front, data out earlier today revealed that despite a bleak economic outlook, the consumer morale in the UK economy held steady for February buoyed by optimism in personal finances. This should provide some respite to market participants, especially after yesterday’s unrevised 0.3% sequential contraction for the fourth quarter, primarily due to weak exports and business investment.
With little substantial from the UK expected today, manufacturing PMI due tomorrow is likely to garner market attention and is expected to show continued expansion for February.
US Dollar – US Markets
The US Dollar failed to register gains against the majors in today’s trading session, as “risk on” sentiment received a boost after the Fed Chairman tried to dissipate concerns that the Fed's QE might end sooner than expected. Ben Bernanke, while testifying before Congress for the second day, indicated that monetary easing policies are showing signs of improvement in the economy and reiterated that potential costs are still not offsetting the benefits. The second estimate of US GDP today is expected to show a modest improvement to the economy in the final quarter of 2012.
Meanwhile, data released yesterday offered a mixed picture with durable goods falling more than expected for February while pending home sales rose more than anticipated, hinting that the housing sector no longer remains a drag on the economy. Against this backdrop, a slew of macro releases including initial jobless claims and a few regional manufacturing indices scheduled later today will be keenly eyed for cues on the overall health of the economy. On the fiscal front, the automatic spending cuts of $85 billion look increasingly likely to start as planned on 1 March 2013, with US politicians nowhere near a deal to avoid them.
Euro – European Markets
In the midst of ongoing distress in Europe, the ECB President helped revive market sentiment after he opined that the central bank has no intention of tightening its monetary policy deployed to help the ailing economy. Additionally, employment data released earlier today has provided further evidence that a revival in the German economy remains well on track. Market concerns over a hung parliament in Italy, reigniting the Eurozone debt crisis, also seems to have ebbed as data released yesterday indicated an improvement in Eurozone economic confidence following decent demand at an Italian bond auction.
Meanwhile, data released today has confirmed that Spain’s GDP contracted sharply in the last quarter. Today’s final consumer price inflation print in the Eurozone for January should not provide any reason for the ECB to alter its current accommodative monetary policy stance.
Other Currencies – Highlights
The Japanese Yen has nudged lower against the US Dollar and the Euro in today’s trading session after the Japanese government, in a widely expected move, nominated Asian Development Bank President, Haruhiko Kuroda, the vocal advocate of aggressive monetary stimulus, to be the next BoJ Governor. Additionally, the BoJ policymaker, Takahide Kiuchi, reiterated that the central bank would continue with its monetary easing stance until it attains the 2% inflation target. With the nation battling with deflation, the consumer inflation data due tomorrow will be closely watched for decoding the monetary policy stance that the central bank plans to adopt in the near future.
On the macro front, data released earlier today indicated that manufacturing and industrial activity rose for February, buoyed by the recent fall in the domestic currency following the Japanese Prime Minister’s call for additional stimulus. Meanwhile, with the US budget cuts set to start from tomorrow, news emanating from the US will have an influence on currency markets in today’s trading session.
BoE less likely to increase interest rates in May
UK’s CPI figure in spotlight, as the Pound value drops
Sterling slumps after lower than expected CPI results