UK Industrial Output Disappoints

With the BoE refraining from altering its unemployment target in its meeting yesterday, market focus has now shifted to next week’s Quarterly Inflation Report for insights into the central bank’s outlook and the stance that the bank plans to adopt in 2014. Meanwhile, the just out UK industrial output data has missed market expectations. Across Europe, the ECB Chief surprised markets by downplaying the threat of deflation in the Euro zone, thereby easing speculation of further interest rate cuts in the immediate future. In the US, today’s employment numbers are expected to show an improvement and will be closely followed to ascertain the trend in the nation’s economic recovery.

Pound Sterling – UK Markets

The Pound moved lower against the US Dollar yesterday after the BoE refrained from amending its forward guidance in its monetary policy meeting while maintaining interest rates at record low levels. Investors will look forward to the central bank’s Quarterly Inflation Report next week, which is likely to shed some light on the same. Meanwhile, Sterling found support and recovered against the greenback later in the day following the release of dismal US economic data, but weakened against the Euro after the ECB decided to keep its policy unaltered. Meanwhile, data just out has shown that monthly industrial and manufacturing output in the UK rose less than analysts’ forecasts, while trade deficit narrowed for December. Subsequently, the Pound has nudged higher against its peers this morning. Later today, the NIESR GDP report and US macro releases will drive trading sentiment in the Pound-US Dollar pair. In the wake of a relatively light domestic economic calendar next week, Sterling investors will track global economic cues for further direction.

US Dollar – US Markets

The US Dollar weakened against the common currency yesterday as demand for the greenback soared following the ECB decision to maintain status quo on policy. Additionally, weaker than expected US trade data further pressured the greenback against the Euro. Trade deficit in the world’s largest economy widened sharply for December on account of declining exports and rising imports, which could possibly lead to a downward revision of fourth quarter GDP numbers. However, a larger than expected fall in the US initial jobless claims numbers kept the greenback’s losses against its peers under check. Meanwhile, the Boston Fed President, Eric Rosengren, opined that the central bank must be patient while tapering its QE3 programme, citing weak labour market recovery and subdued inflation. The greenback has moved higher against the Euro this morning. With the latest ADP and initial claims numbers offering a contradictory view of the labour market, today’s non-farm payrolls will be closely scrutinised by investors for further direction. In the forthcoming week, domestic retail sales and consumer sentiment reports will grab market attention in order to ascertain the trend for the forex market.

Euro – European Markets

The common currency strengthened against its peers yesterday after the ECB decided to hold fire in its monetary policy meeting yesterday. Furthermore, the ECB President, Mario Draghi’s statement that the Euro zone will not slide into deflation, despite the likelihood that economies in the currency bloc might experience periods of low inflation, further supported the Euro. However, Draghi also indicated that the central bank is monitoring developments in the region and may take further action in its next policy meeting, if low inflation continues to persist. Meanwhile, Germany continues to offer mixed signals about its economic recovery after yesterday’s data showed an unexpected decline in factory orders, while data released earlier today revealed that trade surplus in the Euro zone’s largest economy narrowed less than forecast. The common currency is trading on a weaker footing against the greenback this morning ahead of the release of the German industrial output report and the crucial US labour market data later today. Moving forward, a string of Euro zone and German economic data will keep investors on their toes next week.

Other Currencies – Highlights

The Australian Dollar failed to maintain its recent upward momentum against the greenback and has weakened against the currency this morning, even though the Reserve Bank of Australia raised the nation’s economic growth outlook and inflation forecasts for 2014. Additionally, the central bank indicated that interest rates are likely to remain stable at current levels in the near future, citing the improved economic outlook and the weak Australian Dollar. The domestic economy has been showing signs of economic recovery lately, although manufacturing and services sectors continue to remain in contraction territory. Meanwhile, the weak Chinese services PMI and domestic construction PMI reports have limited the upside in the Aussie Dollar against its peers in today’s trading session. In the absence of major domestic economic data, news flows emanating from both sides of the Atlantic will prove crucial for the Australian Dollar against the majors in the session ahead. Looking forward, investors in the Aussie Dollar will keep a tab on a raft of domestic and global economic data scheduled next week for further direction to risk appetite.