All is Not Well

The World Bank has surprised market participants today after it sharply lowered its 2013 global economic growth forecast. In Europe, Jean-Claude Juncker’s comments that the Euro has moved to "dangerously high" levels against the US Dollar, dampened risk appetite. The mood at home is also somewhat subdued as Fitch warned that the UK’s credit rating remains under significant pressure, following the UK Chancellor’s admission that growth would be weak and that the nation could overshoot its debt reduction target. With yesterday’s retail sales data from the US surpassing expectations, industrial production and inflation figures later today keenly awaited.

Pound Sterling – UK Markets

The Pound has pulled back from its recent lows against the Euro this morning, as traders scaled down their bets on the single currency after a key policymaker in the Eurozone stated that the Euro was "dangerously high". Additionally, weak fourth quarter German GDP data released yesterday kept a tight lid on the Euro. However, Sterling is trading under pressure against the US Dollar, as global worries resurfaced after the World Bank sharply lowered its 2013 global economic growth forecast and Fitch warned on the UK’s credit rating. Meanwhile, commentsna from the BoE Governor, Mervyn King, were not encouraging, as he opined that the UK’s economy continues to operate well below full capacity and the banking system remains stretched. There was no respite either on the consumer price inflation front, as data released yesterday showed that UK inflation remained above the central bank's inflation target rate of 2%. With growth concerns resurfacing, it remains to be seen if the BoE adopts a flexible approach to inflation target going forward. With no domestic releases scheduled for today, key economic releases from the US shall continue to provide direction to currency markets.

US Dollar – US Markets

Safe haven buying has been the theme of today’s trading session, as global growth worries re-emerged after the World Bank slashed its global economic growth forecast for the current year to 2.4% from its previous growth projection of 3%. Additionally, the head of the Eurozone finance ministers, Jean-Claude Juncker’s comments that the Euro is hovering at “dangerously high” levels also dampened risk appetite. Meanwhile, US retail sales grew at a stronger than expected pace for the crucial holiday period, thereby offering a breather to traders and giving a favourable sign for the fourth quarter growth. However, manufacturing indicators failed to replicate similar optimism, as data showed that manufacturing activity in New York unexpectedly contracted for January, as industries continued to face the effects of fiscal uncertainty and the prolonged overhang of lacklustre overseas demand. Today’s consumer price inflation reading remains an important gauge of the Fed’s policymakers, while an upside surprise in industrial production figures could come in handy for the yet to be released fourth quarter GDP data. The Fed’s Beige Book survey and NAHB’s housing market index are other economic releases on the docket today.

Euro – European Markets

After Japan, policymakers in the Eurozone appear to be making an attempt to influence currency markets, as the Chairman of the Eurozone finance ministers, Jean-Claude Juncker, stated that Euro is currently hovering at “dangerously high” levels. Juncker’s comments sent the Euro below the 1.33 mark against the greenback in today’s trading session. To add to these woes, the World Bank expects recession in the Eurozone to continue for 2013. The single currency slipped against its peers in yesterday’s session, hurt by data showing that the German economy contracted for the fourth quarter of 2012, largely hurt by weak global demand and a slide in business investment on account of recession in Southern European nations. The outlook also appears bleak, as reports suggest that the nation could lower its 2013 growth estimate. Apart from important economic releases from the US slated for release later today, traders are also expected to keep an eye on the Eurozone consumer price inflation data for December.

Other Currencies – Highlights

The Aussie Dollar has declined against the US Dollar in today’s trading session, as traders shunned high yield assets after the World Bank sharply cut its outlook for global growth in 2013. However, the losses in the Aussie Dollar were limited, as economic data from Australia was largely in line with market estimates. Data from Westpac Banking earlier today showed that Australian consumer confidence rebounded slightly in January after a sharp fall recorded in the previous month. Additionally, new motor vehicle sales for December surpassed market expectations. Apart from key macro releases from the US later today, the crucial unemployment data from Australia due for release early tomorrow will remain an important event on traders’ radar. Additionally, the Chinese economic growth, retail sales and industrial production data due on Friday could also prove a key determinant for the direction of the Aussie Dollar in the near term.