Yellen Testimony in Focus

Trading in currency markets continues to remain subdued today, largely due to the absence of major global economic data. At home, as investors await tomorrow’s Quarterly Inflation Report, consumer spending looks set to drive the UK’s economic recovery in 2014, going by today’s upbeat BRC retail sales report. The testimony by the Fed Chief, Janet Yellen, today is certain to draw maximum market attention, with her take on the US economic recovery and QE3 tapering expected to be closely scrutinised by markets. In the Euro zone, upbeat sentiment indices in the currency bloc continue to confound investors, who will eye this week’s GDP report for further direction.

Pound Sterling – UK Markets

In a rather light trading session yesterday, the Pound searched for direction against the greenback, as investors’ maintained caution ahead of important events in the week ahead, including tomorrow’s BoE Quarterly Inflation Report. While the BoE remained non-committal regarding policy direction in its monetary policy meeting last week, tomorrow’s Quarterly Inflation Report will throw more light on whether the central bank will adjust its forward guidance, especially in the wake of the improving domestic economic environment. Meanwhile, Sterling is trading on a stronger footing against the US Dollar in today’s trading session. The BRC report released earlier today showed that retail sales in the UK rose at the fastest annual pace since April 2011 for January, driven largely by improvement in the housing market as sales in furniture and other non-food items picked up. With no domestic economic data on tap, Sterling investors will keep a tab on the new US Fed Chief, Janet Yellen’s testimony today for further direction to risk appetite.

US Dollar – US Markets

The greenback is trading lower against the majors in today’s trading session. The Fed Chairwoman, Janet Yellen’s testimony before the House Financial Services Committee will be the key highlight in the session ahead. Markets will closely scrutinise the new Fed Chief’s testimony for her views about the domestic economy and status of the central bank’s QE3 tapering in the near future. Any hints of concern by the new Fed Chief could weigh on the US Dollar in today’s session. Additionally, a speech by the Philadelphia Fed President, Charles Plosser, will also gain market attention today. With little on the global macro front to trigger risk appetite, the US Dollar traded in a tight range against the majors yesterday. However, Friday’s weak domestic non-farm payrolls numbers, together with the positive Euro zone economic data, continued to pressurise the greenback against the common currency. Meanwhile, heeding to recent calls made by the Treasury Secretary Jacob Lew, the House of Republicans are planning to hold a vote tomorrow to raise the US government’s borrowing limit and to reverse changes made to military retirement benefits. The debt limit is likely to be raised until March 2015.

Euro – European Markets

The common currency moved broadly higher against the US Dollar in a relatively subdued trading yesterday. While economic data continues to highlight the fragile nature of the currency bloc’s economic recovery, sentiment indices lately have painted a very contradictory picture of the same. The sentix investor confidence for the Euro zone released yesterday rose to the highest level since April 2011 for February, once again fuelling optimism over the region’s economic prospects in the near future. However, industrial production in France and Italy shrank unexpectedly for December, raising concerns about the strength of the economic recovery in these countries. Meanwhile, the single currency has strengthened against the US Dollar this morning. With little of note on the domestic economic calendar today, investors in the Euro-US Dollar will closely follow the Fed Chair, Janet Yellen’s testimony today for further direction. Additionally, a speech by the Bundesbank President, Jens Weidmann will also gain market attention in the session ahead.

Other Currencies – Highlights

After consolidating in a tight range over the past few sessions, the Australian Dollar received a boost this morning as buoyant domestic data lifted the currency against its peers. Australia’s business confidence improved for the first time in four months for January, while business conditions in the nation rose to the highest level in nearly three years, vindicating the RBA’s decision to maintain low interest rates to support the economy. Additionally, house prices in the nation rose more than analysts’ forecasts for the final quarter of last year, further supporting the Aussie Dollar against the majors. Meanwhile, investors in the Australian Dollar will keep a tab on the domestic consumer confidence report later today for further direction. Furthermore, a raft of Chinese macro data and domestic labour market report later this week will prove crucial for the Aussie Dollar against the majors in the near term. Additionally, Janet Yellen’s testimony later today will drive sentiment in the Australian Dollar-US Dollar pair.