UK Manufacturing Data Weak

Last week’s upbeat consumer confidence and housing market reports showed that the British economy had picked-up from where it left off last year. However, the just released downbeat domestic manufacturing PMI numbers have dampened market sentiment and the dominant service sector print later this week will be closely followed for further direction. Additionally, markets will eye the BoE policy meeting on Thursday for clues about a possible change in stance. In the US and the Euro zone, mixed economic data lately has defied the Fed and the ECB’s relatively positive stance and crucial macro-economic reports this week will be closely scrutinised for further direction. The week, though, has begun on a positive note for the Euro zone, following the just out positive manufacturing data.

Pound Sterling – UK Markets

The Pound has slipped below the 1.64 mark against the US Dollar this morning after data showed that the UK manufacturing sector made an unexpectedly weak start to 2014 as manufacturing activity eased unexpectedly for January. The dismal PMI print has dampened investors’ sentiment towards the Pound in today’s session after the currency remained under pressure during the latter part of last week following the US Fed’s QE3 tapering. Meanwhile, house prices in Britain continue to trend higher despite the BoE implementing measures to curb the price increase, raising fears of a looming housing market bubble. Sterling traded on a weaker footing against the greenback on Friday as the Fed decision to scale down its asset purchases outweighed the upbeat domestic consumer confidence numbers. Later this week, the domestic services PMI and industrial output reports will be keenly followed by investors for further direction. However, despite the BoE expected to maintain status quo on policy, the central bank’s monetary policy meeting on Thursday will attract maximum attention from Sterling investors for hints about a possible change in policy stance.

US Dollar – US Markets

The Fed trimming its massive stimulus measures last week continued to reverberate in market action and market talk alike, underpinning demand for the US Dollar on Friday. Additionally, the Dallas Fed President, Richard Fisher’s comments that the central bank must end its QE programme as soon as possible further added to the greenback’s gains. On the macro front, consumer spending in the US climbed more than analysts’ forecasts for December, although incomes in the world’s largest economy stagnated for the month, highlighting that further expansion in the labour market is needed to sustain the recent growth momentum. Meanwhile, business activity in the Chicago region expanded at a better than expected rate, while consumer sentiment in the nation also improved from its previously estimated level for January. The greenback has continued to trade on a stronger footing against the majors in today’s trading session. The ISM manufacturing PMI report today, which is expected to show a slight dip in US manufacturing activity for January, will weigh on the US Dollar’s movement against its peers in the session ahead. Looking forward, a string of domestic economic data will drive sentiment in currency markets this week.

Euro – European Markets

The largely upbeat manufacturing PMI reports across European economies released earlier today has lifted the common currency against the greenback this morning. However, Friday’s disappointing Euro zone consumer price inflation numbers continue to weigh on the currency’s gains. The unexpected fall in inflation for January has raised fears of deflation in the Euro zone and increased speculation that the ECB will be compelled to take drastic measures to counter this. With several ECB policymakers, including its President, Mario Draghi, opining that the central bank will consider all possible measures to combat low inflation, this week’s ECB policy meeting has attained significant importance. Meanwhile, the labour market in the region offers no respite as the unemployment rate continues to hover near record highs. Moving ahead, apart from the ECB monetary policy meeting, a barrage of important domestic economic data, including the Euro zone services PMI, retail sales and German factory output numbers will determine trading sentiment in the Euro-US Dollar pair this week.

Other Currencies – Highlights

The Canadian Dollar has built on Friday’s upward momentum and strengthened against the majors in today’s trading session. Data released on Friday showed that the Canadian economy expanded for a fifth consecutive month for November, led by utilities, mining and oil and gas industries. The 0.2% expansion was in line with market expectations and has put the Canadian economy on a strong footing to achieve upbeat economic growth during the final quarter of 2013. The positive data was cheered by markets and has halted the downward slide in the Canadian Dollar after a slew of mixed macro data lately had prompted the BoC Governor, Stephen Poloz, to raise concerns about the strength of the economic recovery. With little of note on the domestic economic calendar, news flows emanating from both sides of the Atlantic will prove crucial for the Canadian Dollar against the majors today. Additionally, investors in the Canadian Dollar will closely follow important domestic and global economic data this week for further direction.