Bernanke Keeps Markets Guessing

A speech delivered by the Fed Chairman Ben Bernanke yesterday yielded little in terms of a time frame for the withdrawal of the current monetary stimulus measures pursued by the Fed. However, the Fed Chief indicated that he would continue to scrutinise the potential cost of asset purchases and strongly demanded US policy makers to raise the debt ceiling in order to prevent a default. Meanwhile, data earlier today indicated that annual consumer price inflation in the UK remained unchanged at 2.7% for December, possibly offering an opportunity for the BoE to restart its monetary easing programme. Meanwhile, retail sales and producer price inflation data from the US remains the main triggers for today’s trading session.

Pound Sterling – UK Markets

Prevalent worries surrounding the UK economy prompted traders to move away from Sterling against the majors in yesterday’s trading session. However, it has held well against both the Euro and the greenback this morning. Consumer price inflation figures just released has caused no major stir to currency markets, as inflationary pressures remained fairly muted, with rising utility tariffs offsetting early Christmas discounts from retailers and signs of easing food inflation. However, with CPI hovering well above the BoE’s target rate, it remains to be seen how the BoE plans to tackle growth problems in the UK. Meanwhile, the BoE’s lending scheme continues to support the housing market, as RICS in its latest survey indicated that British house prices held steady for December and are poised to pick up in coming months. Despite prevalent worries about the UK economy, the OECD’s latest composite leading indicator showed signs of growth firming in the UK. Apart from external cues, traders are also expected to eye testimonials of some of the BoE policy makers who prepare to appear before the Parliament’s Treasury Select Committee later today.

US Dollar – US Markets

The Fed Chairman, Ben Bernanke, in his first speech in 2013, downplayed fears expressed by some of his colleagues that the central bank’s QE programme could lead to higher inflation or inflate asset bubbles in the future. Meanwhile, the Chairman urged US lawmakers to lift the country's borrowing limit to prevent a default on its debt. The US Dollar remained in a tight range against the common currency in yesterday’s session, as the Fed Chairman offered no major insights into the stance that the central bank plans to adopt in the near future. Moreover, other policy makers from the central bank also continued to portray mixed signals, as San Francisco Fed President, John Williams, backed the case for the Fed buying assets “well into” the second half of 2013, while the Atlanta Fed Bank President, Dennis Lockhart, stated that unconventional monetary stimulus has its limits and could pose threat to the financial stability, if pursued extensively. Retail sales data due for release today is expected to give a clear picture about the performance of the retailers during the Christmas period. Besides, manufacturing data for the New York region will offer initial trends from the manufacturing front for 2013.

Euro – European Markets

The Euro has failed to gain traction against its major peers in today’s session, as reports indicated that the German government will slash its growth forecast for the current year in its annual economic report due for release tomorrow. The brunt of the Eurozone sovereign debt crisis on the German economy seems evident, as data released earlier today showed that the German economic growth slowed sharply to 0.7% for 2012 from a 3% growth recorded for 2011. Meanwhile, among other important economic releases for today, data revealed that inflationary pressures in major European nations remained fairly muted for December. Meanwhile, manufacturing activity in the Eurozone continued to wane, as data showed that the region’s industrial output fell for the third straight month, elevating chances of the economy witnessing a prolonged recession. Apart from the short term bond auctions in Spain, traders are also expected to keep an eye on the Eurozone trade balance figures set for release later today.

Other Currencies – Highlights

The Japanese Yen has advanced sharply against its major counterparts in today’s trading session amid growing speculation that the recent weakness in the Japanese currency might soon come to an end, after the nation’s economy minister, Akira Amari, stated that the Japanese economy faces risks from a weaker domestic currency. Against this backdrop, it remains to be seen whether the Bank of Japan opts to induce further monetary stimulus at its monetary policy meeting slated next week. Apart from a raft of economic releases from the US, traders are also expected keep an eye on the Japanese machine orders data due for release later today and consumer confidence reading due early tomorrow for more cues about the Japanese economy.