With the UK economy continuing to show steady signs of revival, despite the marginally weak services and manufacturing numbers, markets will closely scrutinise the BoE monetary policy meeting today for any changes to the central bank’s forward guidance. Likewise, today’s ECB policy meeting will also gain considerable interest, especially in the wake of weak Euro zone inflation numbers and continued dovish tone adopted by the central bank’s policymakers, including its President, Mario Draghi.
Across the Atlantic, yesterday’s weak ADP report highlighted problems plaguing the nation’s labour market and all eyes will be on the initial jobless claims numbers today and the all-important non-farm payrolls numbers tomorrow.
Pound Sterling – UK Markets
The Pound is trading lower, albeit in a tight range, against the majors in today’s trading session as investors remain on the sidelines ahead of the BoE monetary policy meeting today. Although, there is a growing speculation that the BoE will lower its unemployment target, the central bank is widely expected to pursue a “wait and watch” approach in today’s monetary policy meeting and might undertake such revisions in its Quarterly Inflation Report next month. Meanwhile, Halifax has indicated that house prices in the UK continue to trend upward for January.
Meanwhile, yesterday the Pound recovered most of its early morning losses against the US Dollar later in the day, but continued to trade under pressure against the Euro. The Pound weakened against its peers after the release of the UK services PMI report, which showed that service sector activity unexpectedly slowed down for January, although growth in the sector continues to remain strong. In today’s session, Sterling investors will closely follow both the European central banks’ policy meeting for further direction to risk appetite.
US Dollar – US Markets
The US Dollar searched for direction against the common currency yesterday amidst mixed domestic and Euro zone economic data. The US ADP employment report released yesterday showed that private sector payrolls in the nation increased at a slower than expected pace for January as unusually cold weather contributed to the weak hiring numbers. This could also have a bearing on tomorrow’s non-farm payrolls numbers. However, the ISM non-manufacturing PMI expanded more than expected for January, thereby offering support to the greenback against the Euro. Meanwhile, Fed policymakers continue to advocate further scaling down of stimulus measures despite the recent mixed macro data. Charles Plosser, the President of the Philadelphia Fed, urged the central bank to speed up the pace of QE3 tapering, while the Atlanta Fed President, Dennis Lockhart, opined that further cuts to the central bank’s massive bond purchases would continue and the QE3 programme might end by the fourth quarter of this year as long as the economy continues to improve.
Meanwhile, the greenback is trading range bound against its peers this morning. Investors will keep a tab on today’s initial jobless claims and trade numbers for further direction.
Euro – European Markets
Yesterday’s disappointing Euro zone retail sales data, together with the currency bloc’s stubbornly low inflation has added to the ECB’s concerns and any steps taken by the central bank to further loosen its accommodative policy in its meeting today will not come as a big surprise for markets. Retail sales in the Euro zone declined for December, as the holiday shopping season failed to entice consumers, resulting in the sharpest fall in monthly sales since May 2011. Additionally, the downbeat German and Euro zone services PMI reports have reinforced concerns that the region’s economic recovery is failing to gain momentum and might compel the ECB to take additional steps to support the faltering economy.
Meanwhile, after fluctuating against the US Dollar throughout yesterday’s trading session, the single currency is trading in a tight range against the greenback this morning as investors adopted a cautious approach ahead of the ECB meeting today. Apart from the meeting, the German factory orders and the US initial jobless claims data will also attract market interest in the session ahead.
Other Currencies – Highlights
The Swiss Franc has failed to gain traction against the majors this morning following the release of mixed economic data earlier in the day. Consumer climate index in Switzerland improved for the final quarter of 2013, pointing towards strengthening consumer confidence in the nation as the economy continues to recover from its economic slowdown. However, Switzerland’s trade surplus narrowed more than expected for December, primarily on the back of weak exports.
With no major domestic economic data scheduled for release today, investors in the Swiss Franc will keep a tab on news flows emanating from both sides of the Atlantic for further direction to risk appetite. Additionally, tomorrow’s domestic retail sales report and crucial US economic data will sway market sentiment towards the Swiss Franc in the near term.
Dollar Weakens as Fed Turns Dovish, Eyes on BoE
Euro Plummets as Draghi Opens Door For Rate Cuts
British Pound Stays Under Pressure Ahead of Tuesday's Vote