BoE Keeps the Powder Dry

BoE policymakers rooting for restarting asset purchases remain in the minority, as prevalent inflationary pressures and the recent recovery in the services sector appears to have prompted MPC members to refrain from adopting unorthodox measures. The Euro rallied in yesterday’s session, as the ECB Chief offered no hints of an immediate interest rate cut and also soothed concerns related to the threat posed by the inconclusive election results in Italy. Riskier assets continued to hover close to yesterday’s highs, largely supported by upbeat Chinese trade data. Strength in high yield currencies is likely to remain intact, as today’s jobs data is likely to show that hiring in the US remained steady for February.

Pound Sterling – UK Markets

The Pound nudged higher against the US Dollar in yesterday’s trading session after the BoE played down prospects of immediate stimulus measures at its monetary policy meeting yesterday. However, Sterling retreated against the single currency after the ECB decided to leave its monetary policy unchanged. The UK Prime Minister, David Cameron, reiterated that the government would stick with its course of budget austerity despite the nation losing its coveted top notch credit rating. He also appeared to down play expectations of any major tax reliefs in this month’s Budget. Meanwhile, the new Euro Group President, Jeroen Dijsselbloem, cautioned that the recent slide in Sterling could trigger concerns over the state of Britain’s public finances. With a light economic calendar today, cues emanating from the US are likely to hold the key for determining the near term trend in the currency. Going forward, NIESR estimated GDP and trade balance figures due next week would remain a key event on traders’ radar.

US Dollar – US Markets

The US Dollar traded under pressure against the Pound and the Euro yesterday, after the BoE and ECB decided to leave the size of asset purchases unchanged in their meeting yesterday. However, with the data released yesterday revealing a sharp fall in initial jobless claims, the US Dollar has managed to recoup some of its earlier session losses. In today’s trading session, the Dollar is trading range bound against the single currency amid speculation that a further pickup in US employment, in the labour market report due later today, would compel the US Fed to scale back its asset purchase programme sooner than envisaged. Meanwhile, consumer credit continued to accelerate amid a rise in demand of loans for auto purchases and tuitions. However, weak Chinese imports and wider US trade deficit poured cold water on the recent recovery witnessed in the US economy. A flurry of economic data from China due this weekend could plausibly affect the currency trend in the near term. Going forward, consumer price data would be tracked for inflationary pressures, given its influence on Fed monetary policy. Additionally, a slew of economic releases due next week could possibly sway market sentiment.

Euro – European Markets

The single currency moved higher against the US Dollar yesterday after the ECB decided to leave its monetary policy unchanged amid persistent concerns in Italy’s political arena. Moreover, the ECB Chief fuelled optimism after he assured that the Eurozone economy would gradually recover later in the year. He however gave no indication that the ECB would cut interest rates further. The single currency is trading range bound against the US Dollar in today’s trading session ahead of the crucial non-farm payrolls data from the US due later today. Meanwhile, after the recent set of buoyant economic data from Germany, yesterday’s factory orders dented market sentiment as data revealed an unexpected slump in factory orders for January amid sluggish demand in the crisis stricken Eurozone. In this context, today’s industrial production data would be closely followed to gauge the strength in Germany’s industrial activity. Going forward, markets are expected to keep a tab on a raft of economic releases scheduled for release next week for further insights into Eurozone recovery.

Other Currencies – Highlights

The New Zealand Dollar declined against the US Dollar in today’s session after data showed that the value of manufacturing sales remained unchanged, while volume of manufacturing activity slowed for the fourth quarter. Meanwhile, the focus now shifts to next week’s Reserve Bank of New Zealand’s monetary policy meeting, wherein the central bank is expected to maintain its benchmark interest rate unchanged at 2.5%. Official data revealed today that property prices continued to rise for February, largely hurt by a lack of supply. Heat in the housing market has been an area of concern for the central bank. With no domestic releases in store for today, the labour market report in the US is likely to remain the key trend setter for the Kiwi Dollar in today’s session. Apart from the RBNZ monetary policy decision next week, market participants are also expected to keep an eye on manufacturing and consumer confidence data from New Zealand for further insights into the state of New Zealand’s economy.