Upcoming UK GDP Crucial

Weak economic prospects continue to plague the British economy as NIESR, in its latest projection, indicated that the UK economy might have contracted in the fourth quarter of 2012, reflecting weakness in the nation’s manufacturing activity and slowing growth in the services sector. With the economic landscape once again changing, the GDP data due for release next week will be a key event on the radar. Meanwhile, with market participants paying avid attention to Fed policymakers’ recent statements, trends for today’s session are likely to emerge from Fed Chairman Ben Bernanke’s comments later today, given widespread chatter over the Fed bringing its stimulus programme to an early halt.

Pound Sterling – UK Markets

The BoE’s first monetary policy meeting for the year had a very minimal impact on the Pound last week. However, with growth concerns resurfacing, the Pound continues to nudge lower against the Euro in today’s session. Sterling slipped sharply against its peers in Friday’s session, as the prospect of the British economy once again sliding into a recession appears back on cards. The NIESR, in its latest GDP estimate, indicated that the UK economy is likely to have contracted in the final quarter of 2012, thereby highlighting the fact that the fundamentals of the UK economy remain weak and the recovery in the third quarter was largely driven by one-off events. All eyes will focus on this week’s retail sales data for some insight into the eagerly awaited fourth quarter GDP data, scheduled for release next week. Additionally, inflation figures scheduled for release during the course of the week could very well have a bearing on the stance that the BoE plans to adopt in the near future, given the escalating possibility of the economy falling back into a recession.

US Dollar – US Markets

With external cues being the major drivers to the recent trend in the greenback, a raft of economic releases from the US due this week is likely to prompt traders to switch their attention back to the world’s largest economy. The greenback continued its slide against the Euro and other high yield currencies today, hurt by higher risk appetite among traders and amid speculation that the BoJ will induce further stimulus. Meanwhile, Chicago Fed President Charles Evans stated that continued accommodation is required for now, but he foresees the prospect of the Fed raising rates by 2015. With policymakers sending mixed signals, traders will turn ears to the Fed Chairman Ben Bernanke’s speech later today, for some clarity into the stance that the Fed might pursue this year. With minutes of the latest meeting heightening the possibility of the central bank putting an early end to its current stimulus measures, today’s comments from the Fed Chairman will help clarify to which side influential policymakers in the Fed are leaning. Inflation, retail sales and consumer confidence indicators from the US will also influence the greenback this week.

Euro – European Markets

After a long haul, the Euro briefly touched the 1.34 mark against the greenback in today’s session, continuing the uptrend started after the Spanish bond auction and the ECB meeting. It also remains at a nine-month high versus sterling. Moreover, reports of more monetary stimulus for the Japanese economy and speculation of Chinese GDP data showing signs of growth have prompted market participants to increase their exposure towards riskier assets. Meanwhile, the region’s policymakers continued to sound upbeat regarding economic prospects as German Finance Minister, Wolfgang Schaeuble, reiterated that the worst of the Euro-area's debt crisis appears to be over, while the nation’s Economy Ministry expects the economy to revive significantly during 2013. Additionally, with borrowing costs in peripheral economies falling, Standard & Poor’s expects Ireland and Portugal to return to the debt markets once their respective bailout programmes expire. However, in contrast, reports indicate that Cyprus could place a request for bailout in the coming weeks in order to tackle its economic troubles. The Euro is also expected to monitor trade balance and industrial production figures for further direction.

Other Currencies – Highlights

The New Zealand Dollar rallied against its peers in today’s session, as “risk on” sentiment among traders continued to spur demand for high yield currencies in today’s session. Moreover, data earlier today revealed that the nation’s retail sector continued to perform well, with retail credit card spending continuing to climb at a steady pace. Continuing speculation over the BoJ inducing additional monetary stimulus buoyed demand for riskier assets. Meanwhile, the Chinese fourth quarter GDP, data slated for release in the latter half of the week, is likely to show that the Chinese economy ended seven straight quarters of slower growth. On the domestic front, consumer price inflation readings for the fourth quarter and consumer confidence data due for release later this week will remain key factors influencing the Kiwi Dollar in the weekly session.