UK House Prices Continue to Climb

Domestic house prices continue to spiral upwards, even as the BoE Governor, Mark Carney, played down talks of a looming housing market bubble while also admitting to the central bank’s helplessness in reigning in house prices. Carney’s comments that obstacles to the UK economic recovery persist and interest rates will remain lower in the near future has now shifted market focus towards this week’s domestic inflation and labour market reports. Across the Atlantic, cold weather continues to play havoc with the nation’s economic recovery and important domestic economic reports this week are also expected to further validate these fears. In the Euro zone, economic recovery picked-up during the final quarter of 2014, while Italy continues to be plagued by its political problems.

Pound Sterling – UK Markets

The Pound strengthened against the majors, climbing to near its three-year highs against the US Dollar on Friday. Though the BoE Governor, Mark Carney, indicated that an interest rate hike is not around the corner, Sterling investors continue to remain bullish, propelling the currency higher against its peers. Meanwhile, the Pound is trading on a weaker footing against the majors this morning after momentarily breaching the 1.68 mark against the US Dollar earlier in the day. Data released earlier today showed that house prices in the UK continue to climb, even with the BoE’s restrictive measures in place. The rise in house prices vindicated Mark Carney’s comments over the weekend that the central bank is powerless in controlling the booming housing market in the nation. However, the Governor brushed off claims of an impending housing bubble in the UK. In the wake of the light economic calendar today, Sterling investors are looking forward to tomorrow’s inflation numbers, along with the domestic labour market report and minutes of the latest BoE monetary policy meeting later this week, for further direction.

US Dollar – US Markets

The US Dollar searched for direction against the common currency and weakened against the Pound on Friday as mixed domestic economic data weighed on the currency against its peers. The unusually cold weather was again the culprit as industrial output declined unexpectedly for January, while manufacturing output recorded its biggest drop since May 2009. The rough weather has also adversely affected the labour market and retail sales in the world’s largest economy and is likely to result in stunted national growth during the first quarter of 2014. However, a better than expected Reuters/Michigan consumer sentiment report was the only consolation, reflecting positive consumer attitude towards the economy. The US Dollar is trading lower against the Euro in today’s trading session, largely tracking Friday’s weak domestic data. With little on the global macro front and a US holiday on account of Presidents’ Day today, activity in currency markets is likely to remain subdued in the session ahead. Moving forward, this week’s FOMC minutes will attract considerable market attention to gauge the mood among policymakers towards QE3 tapering. Additionally, a slew of domestic economic releases will also gain market interest during the course of the week.

Euro – European Markets

The better than expected fourth quarter German and Euro zone growth numbers failed to inspire the common currency against the majors on Friday. However, the third consecutive quarterly expansion in the Euro zone GDP showed that the currency bloc’s economic recovery is gathering pace, with Germany and lately France contributing to the attempted turnaround in the region’s fortunes. The weaker than forecast Euro zone trade numbers weighed on the single currency’s gains against the greenback on Friday. Additionally, the ongoing political turmoil in Italy also added to the Euro’s woes. Meanwhile, the common currency is trading higher, albeit in a tight range, against the US Dollar in today’s trading session. With the Italian Prime Minister, Enrico Letta, forced to resign last week in the wake of a party revolt, Matteo Renzi, Letta’s party rival is set to take reigns of the Euro zone's third largest economy which is reeling in the midst of its worst economic crisis. In the absence of major domestic economic data today, Euro investors will keep a tab on the string of European macro reports later this week for further direction.

Other Currencies – Highlights

The Japanese Yen is trading on a weaker footing against its major counterparts following the release of soft domestic growth numbers earlier today. The Japanese economy expanded at a tepid pace during the fourth quarter of 2013, indicating that it still remains vulnerable, given the proposed sales tax hike comes into effect later this year. Additionally, weaker than expected industrial output numbers further weighed on the Japanese Yen against its peers. With the economy showing signs of retreating, it remains to be seen if the Japanese Prime Minister, Shinzo Abe, resorts to further policy loosening in the coming days. In this context, tomorrow’s BoJ monetary policy meeting will also gain significant market attention for insights into the central bank’s take on the nation’s economy. With little on the macro front today, investors in the Japanese Yen will closely follow domestic economic data and the raft of important news flows emanating from both sides of the Atlantic throughout the week for further direction to risk appetite.