European policy makers are likely to stick to their old formula, as the region’s finance ministers decided to design a bailout deal for Cyprus by the end of March 2013 but details of the package are yet to be finalised. Today’s upbeat services PMI across Eurozone has further improved market sentiment towards Europe.
At home, the prospect of the BoE adopting an unprecedented set of measures in this week’s monetary policy meeting appears to be gaining traction, though today’s upbeat services PMI might marginally diminish bets on the BoE’s monetary easing plans. With US policy makers voicing their support for an extended QE, today’s US non-manufacturing index remains a key indicator on traders radar.
Pound Sterling – UK Markets
The Pound got a jump start against its peers today after data just released revealed that the UK services PMI rose for February. In this context, the BoE stance on inducing a fresh dose of monetary stimulus in its monetary policy meeting scheduled on Thursday gains prominence. In early trading today, Sterling received support against both the US Dollar and the Euro after data from the BRC revealed that retail sales in the UK grew at its fastest annual pace in almost two years, largely bolstered by dry weather conditions.
Meanwhile, the BoE data showed that only thirteen lenders opted to tap the Funding for Lending scheme and banks have reduced their credit exposure towards households and businesses. With the FLS scheme having a muted response, the MPC members in this week’s meeting may deliberate on fresh measures to revive growth.
In the absence of major economic data in today’s trading session, markets are likely to ponder on external cues for further direction to currency markets.
US Dollar – US Markets
Influential policy makers in the US Fed continue to voice their opposition for an early withdrawal of the current monetary stimulus, thereby weighing on the performance of the US Dollar against the single currency in today’s trading session. The “risk on” sentiment can also be partly attributed to the agreement on the Cyprus bailout by European policy makers and encouraging services PMI across Europe.
The US Fed Vice Chairman, Janet Yellen, echoed the Fed Chairman, Ben S. Bernanke’s comment last week that the central bank should maintain its ultra loose monetary policy stance in order to support the economic recovery. In this context, the ADP employment data due tomorrow would be on traders radar to gauge for any signs of improvement in the labour market, given its wide spread influence on the Fed’s monetary policy stance. Additionally, the crucial non-farm payrolls data due on Friday would be keenly watched by market participants.
With the recent ISM manufacturing activity surprising on the upside, today’s services PMI data is not likely to change the recent trend of modest growth.
Euro – European Markets
With today’s services PMI across Europe surprising market participants on the upside, the single currency is trading higher against the US Dollar this morning. Though most of the economies showed a contraction in the service sector activity for February, the reading came in ahead of market expectations. Additionally, risk appetite remains supported after the Eurozone finance ministers in their meeting yesterday agreed to bailout Cyprus by the end of March 2013, although details of the financial aid package would be finalised after technical analysis of the country's financing needs.
Meanwhile, yesterday’s Sentix investor confidence fell sharply for March as concerns in peripheral economies, especially Italy, rattled market sentiment. However, downside for the Euro was limited on account of positive Spanish jobs data and call for extended easing in the US.
In today’s trading session, markets are keeping an eye on Eurozone retail sales which is expected to a monthly rebound for January, in sync with the recent upbeat German retail sales data. Any positive surprises on this front will further limit the downside risks for the Euro today..
Other Currencies – Highlights
The Australian Dollar has nudged higher against the US Dollar this morning following a slew of upbeat economic releases earlier today and after the RBA decided to keep its key interest rate unchanged at 3%. However, the RBA Chief reiterated that benign inflation outlook has given enough scope to the central bank to ease the policy further, if need arises. On the economic front, retail sales growth surpassed market expectations for January, largely supported by easing measures adopted by the central bank. Additionally, data revealed that current account deficit narrowed for the fourth quarter of 2012 and services activity improved for February.
With a light domestic economic calendar today, external cues would likely hold significance for the Aussie Dollar. Additionally, tomorrow’s GDP data and trade balance figures due for release in the latter half of the week are likely to offer further direction.