America Day

Developments from the US are likely to play a pivotal role in determining risk appetite in today’s session, as the FOMC meeting and GDP figures for the fourth quarter are likely to offer clues to the state of the US economy. The Fed’s monetary policy statement will be keenly dissected for any signs of an early withdrawal of monetary stimulus, while the ADP employment report is expected to offer the first cues from the US labour market for 2013. In the UK, data today once again showed that the BoE’s funding for lending scheme continued to have a positive influence on mortgage up-take. Leading indicators from the Eurozone will also hold significance today.

Pound Sterling – UK Markets

Sterling is trading marginally lower against the US Dollar in today’s trading session. However, credit conditions in the UK continue to show signs of improvement, as data just released indicated that mortgage approvals in the UK continued to climb for December. Recent data from credit markets continues to highlight the positive influence of the funding for lending scheme on the broader economy. Meanwhile MPC member, David Miles, expressed his confidence that British economic growth would pick up in 2013. However, the policymaker offered no signs of reversing his stance for voting in favour of additional monetary stimulus, as he reaffirmed that quantitative easing remains a powerful tool in the BoE’s arsenal and that the central bank should induce further stimulus in the midst of muted inflationary pressures. With no major economic releases in store for today, markets are expected to turn their attention to a raft of economic releases in the US during today’s session.

US Dollar – US Markets

The greenback has continued to trade close to yesterday’s lows against the Euro and the Pound in today’s trading session in the build up to the Fed’s first monetary policy meeting for 2013. However, data yesterday indicated that consumer confidence declined substantially in January, highlighting the fragile state of consumer morale in the US and validating speculation that the idea of an early withdrawal of monetary stimulus might still be premature. Today’s GDP data is also expected to reinforce concern, as it may show a slowdown in economic activity in the last quarter of 2012, partially hurt by the destruction caused by Superstorm Sandy. The Fed’s policymakers are likely to deliberate on today’s GDP figures before releasing their monetary policy statement in the latter half of today’s trading session. Traders are expected to continue looking for hints to the path that the Fed plans to pursue for the rest of the year. The ADP employment data will also hold significance in today’s session ahead of non-farm payrolls on Friday, as the figures are likely to shed light on whether strong jobless claims data reflects the strength in the labour market, or are just a matter of seasonal distortion.

Euro – European Markets

The Euro has continued to spiral upwards against its major counterparts and successfully breached the 1.35 mark against the greenback this morning, as risk appetite increased among investors after weak US consumer confidence data stoked speculation that an early withdrawal of monetary stimulus in the US may be far-fetched. However, peripheral Eurozone economies are still not out of the woods, as data today revealed that Spain slipped deeper into a recession for the fourth quarter of 2012, largely hurt by the government’s austerity programme and continued weakness in the nation’s labour market. Against this backdrop, calls for the relaxation of Spain’s budget target are likely to get louder. Meanwhile, with most European policymakers expecting 2013 to be a watershed year in the region’s economy, the European Commission President, Jose Barroso, echoed similar optimism by stating that the economy is starting to climb out of a recession. Apart from key leading indicators from the Eurozone, a slew of economic releases from the US are expected to garner market attention in today’s session.

Other Currencies – Highlights

The Japanese Yen has declined against its peers in today’s session, amid speculation that the Japanese central bank might pursue more aggressive monetary stimulus measures in order to tackle the deflationary situation in the economy. The Japanese Prime Minister, Shinzo Abe, shrugged off international criticism over the recent fiscal and monetary policy initiatives by arguing that policy decisions taken by the government and the BoJ are aimed at beating deflation and achieving sustainable economic growth. On the economic front, data revealed that retail sales grew marginally for December. Meanwhile, industrial production figures slated for release in the latter half of today’s session are likely to grab some market attention. However, developments from the US during today’s session remain a key trend setter, given its implication to the global economy.