U.K. Consumer Price Inflation Eases

With UK consumer price inflation easing to 1.9% for January, below the BoE’s comfort level, the central bank is unlikely to resort to any dramatic measures to tighten policy in the near term, especially with the BoE Governor, Mark Carney, indicating the same last week. Investors will closely scrutinise the domestic employment report scheduled tomorrow to see how the labour market fared during the first month of 2014. In the US, economic data in the coming days is likely to remain distorted as cold weather continues to hinder the nation’s economic recovery this year. In the Euro zone, forward looking sentiment indices will attract considerable market attention, particularly in the wake of the latest upbeat German and Euro zone GDP reports.

Pound Sterling – UK Markets

Just released domestic consumer price inflation numbers have shown that inflationary pressures in the U.K. eased for January, making the job of the BoE a little trickier. Even though Sterling has been trading under pressure against its peers this morning, market reaction to the inflation report has been largely muted. With the BoE Governor, Mark Carney, stating that the central bank will keep a tab on a number of factors before deciding to raise interest rates, the domestic labour market report will generate interest among Sterling investors later this week. Meanwhile, after momentarily breaching the 1.68 level against US Dollar, the Pound moved lower against its peers yesterday on profit booking in the midst of a relatively light trading session. The BoE policymaker, David Miles’ statement that the central bank will resort to a rate hike only as the last measure to cool the housing market boom further pressurised the Pound against its peers. With no further domestic economic data on tap today, investors will eye macro releases from the US and the Euro zone for further direction to risk appetite.

US Dollar – US Markets

With a public holiday in the US, trading in currency markets was largely subdued yesterday. The greenback searched for direction against the common currency as traders remained on the sidelines amid a lack of decisive economic data. The US Dollar has come under pressure against its major peers lately as weak domestic economic reports, largely due to the prevailing cold weather in the world’s largest economy, have made investors jittery about the nation’s economic prospects during the first quarter of 2014. However, the new Fed Chief, Janet Yellen’s pledge last week that the central bank will continue tapering the QE3 programme in future has limited further downside risks in the US Dollar. The greenback is trading on a weaker footing against the single currency in today’s trading session. Later today, investors will keep a tab on the Empire state manufacturing report for insights into the business conditions in the region along with the NAHB housing market index. Additionally, economic data from the Euro zone will determine trading sentiment in the Euro-US Dollar pair in the session ahead.

Euro – European Markets

With little on the domestic and global macro front, the single currency was volatile against the US Dollar yesterday, as the Euro failed to build on its recent gains against the greenback despite Friday’s upbeat German and Euro zone GDP numbers. While the Euro zone seems to be recovering from its prolonged economic slowdown, weak consumer price inflation in the region may hamper its efforts to achieve sustained economic growth. Meanwhile, the ECB governing council member, Ewald Nowotny, has reinforced the central bank’s views that there is no threat of deflation in the Euro zone and that the bank will adopt a wait and watch approach with regards to interest rates. The Euro is trading higher against the majors in today’s trading session. The forward looking ZEW sentiment indices for Germany and the Euro zone scheduled for release later today will be closely followed by Euro investors for further direction. While sentiment in the currency bloc has been improving lately, investors will hope that the upbeat confidence translates into steady economic growth in the year ahead.

Other Currencies – Highlights

The Australian Dollar pared its early morning gains and has weakened against the US Dollar in today’s trading session. The Aussie Dollar moved higher against its major counterparts earlier in the day after the minutes of the RBA’s latest monetary policy meeting showed that interest rates in the nation are likely to remain stable at present levels in the near term, if the economy continues to improve. However, the central bank opined that economic growth will remain subdued through 2014 and will pick-up pace only by mid-2016, warning that improvements in the labour market will also take time to materialise. In the absence of major domestic economic data today, investors in the Australian Dollar will keep a tab on news flows emanating from both sides of the Atlantic for further direction. Later this week, important global macro releases will prove crucial for the Aussie Dollar against the majors.