US Back in Focus

Currency markets began the weekly session on a calmer note, as traders anxiously await a flurry of economic data from the US during the week. US durable goods orders are likely to kick start the action for the week, with traders expected to pay close attention to the mid-week FOMC meeting, US GDP figures and the crucial non-farm payrolls report at the end of the week. At home, dismal GDP figures continued to push the Pound lower, as the possibility of the UK losing its top notch credit rating remains a legitimate threat. However, the situation in Europe seems to be improving as figures from the ECB indicated that banks are expected to repay more LTRO funds than earlier anticipated.

Pound Sterling – UK Markets

The Pound has steadily declined against the Euro and the US Dollar in today’s trading session amid growing concern over the UK economy, following weak fourth quarter GDP data on Friday. With GDP figures showing a considerable deceleration in economic activity, traders continued to fret over the possibility of the UK losing its coveted “AAA” credit rating. Additionally, the government offered no signs of softening its austerity stance as the Deputy Prime Minister, Nick Clegg, stated that government would stay committed to its austerity agenda. Meanwhile, the incoming BoE Governor, Mark Carney, once again reiterated that the central bank should put growth at the heart of its monetary policy approach, an idea opposed by few MPC members. On the macro front, Hometrack has reported that asking prices for homes in the UK remained flat for January. Apart from the crucial manufacturing PMI and mortgage approvals data, it remains a relatively quiet week for Sterling, shifting the focus once again to developments in the US.

US Dollar – US Markets

The greenback has moved higher against the majors this morning, as market participants stayed cautious ahead of a flurry of major economic releases during the week that includes GDP readings for the fourth quarter, US consumer confidence figures for the post-holiday period and the ISM manufacturing survey. The Fed, in its monetary policy meeting later this week, is expected to reveal no change in its current policy stance. However, with speculation of the Fed planning an early exit from its current stimulus programme gaining momentum, the all important non-farm payrolls data during the final trading session of this week will grab market attention for clarity on the Fed’s next move. Meanwhile, with some districts in the US reporting weakness in manufacturing activity, no major surprises are expected from today’s Dallas Fed manufacturing index, as market participants anticipate the index to decline for January. However, durable goods data later today could prove to be a major head turner, as markets expect a strong rebound in December orders buoyed by a recovery following Superstorm Sandy. Additionally, pending home sales in the US are likely to show acceleration for December.

Euro – European Markets

The Euro nudged closer to its highest level since 2012 against the US Dollar in Friday’s trading session, after latest data from the ECB showed that European financial institutions are expected to repay greater than expected funds at the first repayment opportunity of LTRO loans later this week. The release stated that the ECB would recover €137 billion on 30 January 2013, as nearly 278 banks have rushed for early repayment of the ECB’s loans, thereby sending a strong signal that the banking system is on the mend. In the midst of soaring optimism the ECB Chief, Mario Draghi, once again reiterated his view that the Eurozone economy would stage a recovery in the second half of 2012. Meanwhile, the common currency has begun today’s session marginally lower against the US Dollar, as economic releases from the US are once again expected to hog the limelight during the week. On the domestic front, markets are expected to keep a watch on the Eurozone consumer confidence data and German labour market report due later this week for further insights into the state of the region’s economy.

Other Currencies – Highlights

The Swiss Franc has failed to gain traction against its peers in today’s session, as traders continued to fret over the possibility of the Swiss National Bank intervening in currency markets. The Swiss Finance Minister, Eveline Widmer-Schlumpf, indicated that the Swiss Franc still remains overvalued and more depreciation is required, while the Economy Minister, Johann Schneider-Ammann, echoed similar views. A change in the SNB’s monetary policy stance cannot be ruled out, as the central bank President, Thomas Jordan, also indicated that there remains more room for the Swiss Franc to weaken further and added that further monetary policy measures could be undertaken to keep the Swiss franc in check. On the economic front, data today revealed that the amount of cash commercial banks held with the SNB fell last week. The Swiss manufacturing data due for release during the latter half of the week will be a key domestic driver for the Swiss Franc, while a raft of economic releases from the US is likely to determine risk appetite among traders.