A day of relatively light domestic economic activity awaits investors today, with market speculation still rife over a potential European interest rate hike in the near future. Against this backdrop, a raft of domestic economic reports next week will prove crucial for the Pound. In the US, the abnormally cold weather has weighed on economic data lately, including yesterday’s retail sales report, making it difficult to gauge economic patterns in the nation. In this context, today’s consumer sentiment print will be closely scrutinised.
In the Euro zone, following better than expected German and French GDP numbers, expectations of an upside surprise from today’s Euro zone GDP report have mounted and is likely to set the tone in the session ahead.
Pound Sterling – UK Markets
The Pound moved higher against the US Dollar yesterday as markets continued to overlook the BoE Governor, Mark Carney’s reassurance that interest rates in the UK will remain at lower levels for an extended period of time. Spencer Dale, the BoE’s Chief economist, also supported Carney’s views by stating that although strong UK economic growth is expected for 2014, a rise in productivity is needed to warrant a hike in borrowing costs. Later in the day, weak US economic data further supported Sterling against the greenback. Meanwhile, the British housing market showed signs of cooling for the second consecutive month as RICS reported a slower rise in house prices for January.
In today’s trading session, the Pound has moved higher against the majors. The just out domestic construction output report has showed that construction activity in the nation rose during the last month of 2013, highlighting the strength of the nation’s housing market. With no domestic economic data on tap for the rest of the day, Sterling investors will closely follow macro reports from the US and the Euro zone for further direction. Moving forward, a string of domestic economic data will keep investors on their toes next week.
US Dollar – US Markets
The US Dollar continued to weaken against its peers yesterday as the unusually cold weather in the nation weighed on the January retail sales report, while the number of people claiming first time unemployment benefits also rose unexpectedly last week. The bad weather has impacted consumer spending in the nation as retail sales declined more than expected for January, beginning the year on a weaker footing, while December numbers were also revised downwards. While the numbers look distorted primarily due to extreme weather conditions, investors will closely scrutinise economic data in the coming months for a clearer picture about the US economy. Today’s Reuters/Michigan consumer sentiment data is expected to shed further light on the consumer morale during this month.
The greenback is trading in a tight range against the common currency this morning following upbeat GDP data from Germany and France. The Reuters/Michigan consumer confidence index and industrial output data, together with the Euro zone GDP numbers will influence trading sentiment in the Euro-US Dollar pair today. In the forthcoming week, a host of domestic economic data will be closely eyed by investors.
Euro – European Markets
With Germany and France reporting better than expected growth numbers for the final quarter of 2013, expectations of the optimism rubbing on to the Euro zone GDP report scheduled for release later today have risen. The single currency is trading under pressure against the greenback this morning despite the buoyant economic data and upbeat Euro zone GDP print is likely to propel the common currency against its peers. Additionally, the Euro zone trade data and macro releases from across the Atlantic will provide direction to the Euro-US Dollar pair in the session ahead.
Meanwhile, the common currency consolidated its recent gains against the majors yesterday, even as the ECB monthly report reinforced the bank’s earlier views that inflation will remain low for a prolonged period and that the central bank will continue to maintain accommodative policy stance for as long as necessary. Additionally, the German inflation print failed to surprise markets as price pressures continued to remain subdued in the nation. Looking ahead, the German and Euro zone ZEW sentiment indices, manufacturing and services PMIs and the EC’s economic growth forecasts will gain market attention next week.
Other Currencies – Highlights
The New Zealand Dollar is trading on a stronger footing against most of its major counterparts this morning after data released earlier in the day showed that consumer price inflation in China, New Zealand’s major trading partner, unexpectedly steadied for January. With recent economic data emanating from China painting a rather bleak picture of economic activity, fears had crept in that the slow economic growth in the world’s second largest economy might negatively impact New Zealand’s economic recovery. Against this backdrop, today’s relatively positive Chinese inflation report has lifted market sentiment towards the Kiwi Dollar. On the domestic macro front, house prices in New Zealand continued their downtrend for January.
In the absence of domestic economic data today, investors in the Kiwi Dollar will keep a tab on global macro releases for further direction. In the next week, the fourth quarter domestic retail sales report and a string of economic data from major global economies will prove crucial for the New Zealand Dollar against its major peers.