ECB Monetary Policy Today

Although the ECB is unlikely to announce any major change in its monetary policy later today, market participants will be all ears to the ECB Chief’s comments later today. With policymakers’ bias seemingly in favour of using loose policy measures, Mario Draghi’s view on risks surrounding a potential deflation is likely to hold market interest. Across the Atlantic, yesterday’s upbeat ADP employment report has boosted hopes that today’s initial jobless claims and tomorrow’s non-farm payrolls data might overshoot estimates. At home, data just released has shown that services PMI dropped more than expected for March. Although the pace of growth in the services sector remains fairly modest, the latest set of PMI readings indicate that Britain remains susceptible to shocks.

Pound Sterling – UK Markets

The Pound weakened against its major counterparts this morning after data showed that the UK’s dominant services sector deteriorated for March. Although the pace of expansion in the services sector remains modest, the latest set of PMI readings seem to point towards signs of minor headwinds in the overall economy. Against this backdrop, traders are likely to stay watchful about incoming economic data from the UK in order to gauge the state of affairs in Britain. Although few market participants believe that the BoE could be ahead of other major central banks in abandoning accommodative policy measures, the underlying speculation was boosted after the BoE Chief stated that he does not rule out the possibility of the central bank embracing higher interest rates ahead of next year’s elections in the UK. Meanwhile, Sterling hovered in a tight range against the greenback in yesterday’s trading session. With no major domestic macro indicators due for release this week, traders are likely to focus on today’s monetary policy decision in Europe and tomorrow’s labour market report in the US for further direction to currency markets.

US Dollar – US Markets

The US Dollar advanced against the Euro yesterday following encouraging domestic ADP employment figures and factory orders data. The survey revealed that US companies hired at the fastest pace in three months for March, thus indicating that the domestic labour market is gaining traction following the weather related weakness. Separately, data indicated that monthly factory orders in the US rebounded for February. The encouraging macro data has further strengthened views that economic growth during the initial period of 2014 was largely hurt by rough weather conditions. However, two influential policymakers reiterated the widely held view that the central bank is in no rush to hike interest rates and indicated that further improvement on the economic front would be warranted to alter the Fed’s stance in the near future. The greenback is trading in a tight range against its major peers this morning. Going forward, investors will eye some important macro data in the US, especially initial jobless claims and ISM non-manufacturing composite index. Against the backdrop of positive private employment data, tomorrow’s non-farm payrolls will be closely watched to gauge the pace of improvement in the domestic labour market.

Euro – European Markets

Today’s services PMI data across Europe has been mixed, with services activity showing a more than expected deterioration in Euro zone, Germany and Italy, while France and Spain witnessed a faster than anticipated pace of expansion for March. As a result, the single currency is trading range bound against the greenback in today’s trading session. In the wake of recent spate of mostly downbeat macroeconomic data across the region, it will be interesting to monitor the ECB’s monetary policy decision followed by the press conference from Mario Draghi, especially after few ECB policymakers shrugged off deflationary pressures prevailing in the region. Yesterday, the IMF head, Christine Lagarde, urged the ECB to do more to combat low inflation in the region and warned that easing inflationary trend could undermine the fragile global recovery. Also, market participants will closely monitor Euro zone retail sales data scheduled for release later in the session. Yesterday, the Euro dropped against the US Dollar following a downward revision to the Euro area’s economic growth for the fourth quarter of 2013 and as producer prices fell at a faster than expected pace for February.

Other Currencies – Highlights

The Aussie Dollar is trading lower against the majors this morning after data indicated that domestic retail sales growth slowed more than expected while China’s official non-manufacturing activity dropped for March. Additionally, the performance of services sector index in Australia showed a contraction for March. However, retail sales continued to rise for the tenth consecutive month in Australia, thus strengthening view that the recovery remains on path, mainly driven by low interest rates and rising household wealth. Separately, trade surplus numbers surprised markets on the upside, as exports to China grew by almost a third compared to the previous year. Meanwhile, the RBA Governor, Glenn Stevens, opined that while there were encouraging signs of transition from mining investment to domestic led growth, it would be too early to declare the success of the handover. With a lack of decisive triggers in Australia, investors will keep a tab on today’s ECB monetary policy decision and tomorrow’s US non-farm payrolls report for further direction. Also, a slew of domestic macroeconomic data scheduled next week will be keenly watched for further direction.