Currency markets continue to remain influenced by the dovish tone of the Fed Chief, Janet Yellen’s comments yesterday and in the wake of a light economic calendar today, the tone is likely to stay the same in today’s session, ahead of the extended weekend. In the Euro zone, yesterday’s economic data confirmed the continued downward trend in the region’s inflation. Against this backdrop, it remains to be seen if the ECB resorts to using unconventional policy tools in its meeting this month.
At home, in the wake of an improving economy, particularly the labour market, the BoE is likely to be under pressure to raise interest rates. The BoE minutes next week will be closely followed by investors for any hints about the central bank’s policy stance going forward.
Pound Sterling – UK Markets
The Pound breached the crucial 1.68 mark against the US Dollar yesterday, following better than expected labour market data. The unemployment rate dropped to a five-year low for February, below the central bank’s threshold of 7%, highlighting the strength in the domestic labour market and thereby raising prospects of a hike in interest rates. Meanwhile, Sterling maintained its gains against the greenback after the US Fed Chief, Janet Yellen, indicated that the central bank would continue to keep interest rates at record low to support the economic recovery.
Sterling is trading on a firmer footing against the greenback in today’s trading session. With a truncated week and no major domestic macroeconomic data due today, investors will keep a close watch on upcoming economic data from the US and news flow from Eastern Europe in order to determine the trend for Sterling against its major peers in today’s session. In the forthcoming week, markets await the BoE minutes along with UK’s retail sales numbers for deeper insights about the UK economy.
US Dollar – US Markets
The US Dollar dropped against most of its major counterparts yesterday, after the US Fed Chief, Janet Yellen, stated that the central bank will maintain ultra-low interest rates to support the recovery. She further added that policymakers will monitor trends from the labour market and prices before determining the future course of interest rates in the US. Meanwhile, economic releases yesterday offered no reasons to cheer. Housing starts and building permits figures came in below market expectations for March. The recent set of disappointing housing sector reports this week have heightened fears that the US housing sector might be slowing down. Against this backdrop, next week’s housing sector figures are likely to attract market interest, to evaluate whether it echoes a similar tone. Meanwhile, the Fed’s Beige book indicated that the US economy is recovering following an unfavourable weather conditions that prevailed in the nation earlier this year.
In today’s trading session, the greenback is trading on a weaker footing against the majors. Markets await jobless claims data and Philadelphia manufacturing activity report today for further direction. Along with some housing market data, next week’s manufacturing indicators and durable goods orders data will keep investors interested.
Euro – European Markets
Mixed macroeconomic data in the US and dovish comments from the US Fed Chief led the Euro to nudge higher against the US Dollar yesterday. However, gains were capped as the Euro zone’s inflation report indicated that inflation in the currency bloc remained at the weakest level since October 2009. Additionally, today’s producer price inflation report in Germany confirmed deflationary pressures prevailing in the country, thus adding pressure on the ECB to take imminent actions to prevent deflation.
The common currency is trading on a higher note against the greenback this morning, ahead of some economic reports later today in the US, especially jobless claims figures to ascertain the pace of recovery in the US labour market. Going forward, markets have their plates full in terms of macro data across Europe in the forthcoming week, including Euro zone consumer confidence and German Ifo sentiment indices along with manufacturing activity report from the Euro area region. Also, markets will keep a track of developments over ongoing Ukraine conflict.
Other Currencies – Highlights
The Canadian Dollar has advanced against the US Dollar this morning. The BoC, in its policy meeting yesterday, held its interest rates at 1% and lowered its 2014 economic growth forecast to 2.3% from 2.5%, despite improvements in labour, trade and housing since its last meeting, mainly due to concerns about the export sector and investment. However, losses in the Canadian Dollar were capped following mixed data from the US and confirmation from the US Fed Chief to keep interest rates low for a considerable time to help the US economy to recover.
Today’s inflation numbers which are expected to rise, is likely to attract maximum market attention given that recent higher energy prices and a relatively lower Canadian Dollar. With a light economic calendar next week, apart from domestic retail sales data, the Canadian Dollar is likely to chart movement in accordance with the US economic data.