US Retail Sales in Focus

With the IMF raising its 2014 economic growth forecast for the UK last week, crucial economic data this week, including the domestic inflation and labour market reports, will be on investors’ radar in order to gauge if these economic indicators reflect strength in the British economy. Across the Atlantic, today’s retail sales data is likely to provide further evidence of the US economic recovery gaining momentum. The Euro zone industrial output data will also attract market attention in today’s session, ahead of the region’s inflation report later in the week. Moreover, market participants will keep an eye on developments in Ukraine amid signs of renewed tensions in Eastern Europe.

Pound Sterling – UK Markets

Sterling dropped against the US Dollar on Friday after data indicated that consumer confidence in the US rose more than expected while producer price inflation climbed at the fastest pace in nine months, thereby adding to recent indications pointing towards strength in US economic recovery. The Pound is trading in a tight range against most of its major peers in today’s trading session. Data released earlier today indicated that the Rightmove house price index rose for a second straight month for April, thereby indicating that the UK housing market continues to soar. With little on the domestic calendar today, market sentiment is likely to be influenced by retail sales data in the US scheduled later today. Earlier last week, the BoE, as expected, left its monetary policy unaltered, given that both inflation and unemployment are not in the central bank’s comfort zone. Against this backdrop, Sterling investors focus will be more inclined towards key domestic releases including tomorrow’s consumer price inflation which is expected to tick lower for March while the labour market data due later in the week is likely to show a drop in the unemployment rate for February.

US Dollar – US Markets

The US Dollar advanced against most of its major counterparts in Friday’s trading session, supported by safe haven buying following a sell-off in equity markets around the world. The preliminary reading of Reuters/Michigan consumer confidence rose to the highest level in nine months for April, helped by positive views on both current and upcoming economic conditions, thus suggesting that the current economic recovery might pick up pace during the second quarter. Meanwhile, data released earlier indicated that producer prices rose at the fastest pace in nine months for March. The greenback is trading on a firmer footing against the Euro following dovish comments from the ECB Chief over the weekend and fears of further escalation in geopolitical tensions in Eastern Europe. Going forward, investors will keep a tab on today’s retail sales data which is likely to show an improvement in consumer spending for March. Also, tomorrow’s consumer price inflation followed by the US Fed, Janet Yellen’s speech will attract market attention during the week.

Euro – European Markets

In today’s trading session, the common currency is trading under pressure against the majors after the ECB Chief, Mario Draghi, over the weekend warned that strengthening of the Euro could compel the central bank to unleash additional monetary stimulus to keep inflation from falling too low. Also, Benoit Coeure, the ECB’s Executive Board Member, echoed a similar tone and stated the central bank might consider asset purchases as one of the tools to fight low inflation in the Euro area. Against this backdrop, this week’s final reading of consumer price inflation will be eyed and is likely to confirm that inflation eased in the currency bloc, given that data released last week indicated that consumer price inflation slowed in most of the Euro area’s peripheral economies. Additionally, today’s Euro zone industrial production and US retail sales data along with tomorrow’s German ZEW sentiment indices will keep the Euro-US Dollar investors on their toes. Besides, the Euro failed to continue its upward momentum against the majors in recent trading sessions on signs of further flare up of geopolitical tensions in Eastern Europe. Going forward, news flows emanating from Ukraine will be closely watched by investors.

Other Currencies – Highlights

Better than expected US consumer confidence and producer price inflation data weighed on the Japanese Yen against the US Dollar on Friday. Additionally, Haruhiko Kuroda, the BoJ Governor, indicated that the economy is only half way through in achieving its 2% inflation target and further stated that the central bank is ready to act if prospects of meeting its target are at risk. Earlier on Friday, the BoJ minutes revealed that policymakers agreed that the Japanese economic recovery and inflation are moving in line with the central bank’s expectations. Meanwhile, the Japanese Yen is trading higher against most of its major counterparts, finding support from safe-haven buying amid worries of mounting geopolitical tensions between Ukraine and Russia. With no major domestic macro data due later today, investors will keep a tab on domestic consumer confidence and industrial production reports along with the BoJ Governor’s speech scheduled later in the week. Also, markets await a slew of important macroeconomic data in the US including retail sales, consumer price inflation along with the US Fed Chief’s speech during the week.