Discord Over Euro Strength

Views of policy makers continued to have a bearing on currency markets, as the Euro showed some signs of strength against its peers yesterday after the ECB governing council member, Ewald Nowotny indicated that the recent rally in the common currency was "not a matter of major concern". The comments delivered a strong signal that the ECB does not subscribe to the views recently aired by few influential European policy makers. Meanwhile, market participants await the UK Prime Minister’s speech tomorrow for clarity over the nation’s future ties with the EU. Traders are eyeing the Spanish bond auctions and US economic releases scheduled later today which have the potential to impact market sentiment.

Pound Sterling – UK Markets

Sterling resumed its fall against the Euro in yesterday’s trading session after an ECB Governing Council member dismissed earlier claims that the single currency was hovering at higher levels. Moreover, prevalent concerns that the UK might lose its top notch credit rating weakened the Pound against its peers yesterday. Markets are keenly looking forward to the Prime Minister, David Cameron’s speech scheduled tomorrow, wherein the Prime Minister is expected to reveal his plans to renegotiate Britain's membership of the EU. With the Prime Minister’s party colleagues calling for loosening ties with the EU, tomorrow’s event might have some ramifications on the UK economy, given the nation’s close trading ties with the European nations. Besides, retail sales figures due for release in the final trading session of this week is likely to shed more light into the possibility of the British economy contracting for the fourth quarter. In another day of a light economic calendar for the UK, cues from external markets will determine the trend in Sterling today.

US Dollar – US Markets

The greenback has moved lower against the Euro and Sterling in today’s session amid hopes of a strong demand at the Spanish bond auctions due later today. Although inflationary pressures in the US remained subdued and the consumer price inflation hovered well below the Fed’s target rate, the Fed in its Beige Book survey sounded more upbeat about the economy, hinting that the US economy grew at a "modest or moderate" pace in December 2012 and early January 2013. Meanwhile, the Dallas Fed President continued to reiterate his hawkish stance, as he stated that the Fed’s bond buying programme is having a diminishing impact on reviving economic activity. With yesterday’s industrial production showing a substantial slowdown in growth for December, traders will be closely eyeing today’s manufacturing data from the Philadelphia region for further insights into trends in industrial production for the early phase of 2013. Meanwhile, building permits and housing starts figures slated later today are likely to offer further cues on whether the recovery in the housing sector is sustaining. The jobless claims data will also garner modest market attention, given its widespread influence on the Fed’s monetary policy stance.

Euro – European Markets

The Euro garnered some traction against some of its counterparts in yesterday’s session, after the ECB policy maker Ewald Nowotny, refrained from lending support to the Euro group finance ministers head, Jean-Claude Juncker's concern about the recent strength seen in the single currency. Additionally, the Euro nudged higher against the greenback and Sterling in today’s session, amid prevalent optimism that Spain would clear today’s bond auction hurdle with ease, largely supported by falling bond yields in peripheral economies. To add to the optimism, the IMF released the next tranche of bailout funds to Greece and Portugal. Despite her earlier scepticism, the IMF Managing Director, Christine Lagarde, appears to have backtracked from her earlier stance, as she opined that Greece’s program was 'moving in the right direction'. Apart from today’s construction output figures in the Euro zone traders will stay watchful about a flurry of economic data from the US and China in the upcoming sessions to gauge the risk appetite among market participants.

Other Currencies – Highlights

The Aussie Dollar has declined against most of the majors in today’s trading session, as weaker than expected employment data kept alive the risk of an interest rate cut in the Reserve Bank of Australia’s monetary policy meeting scheduled next month. The latest employment data showed an unexpected fall in hiring, while the unemployment rate rose to 5.4% for December. With no domestic releases scheduled during this week, the Spanish bond auctions and a spate of US economic data would have an impact on high yield currencies in today’s session. Additionally, the Aussie Dollar will closely track a key set of economic data from China due for release in tomorrow’s session, wherein the fourth quarter GDP figures are likely to show an end to the slowing trend witnessed in the Chinese growth for the last seven quarters.