UK Unemployment Rate Rises

Labour market data from the UK painted a mixed picture, with the unemployment rate unexpectedly rising and the number of jobless claimants declining more than expected. However, with this week’s releases showing that monetary policy indicators are perched broadly close to the BoE’s long term thresholds, the perceived success of the current monetary policy regime is likely to persuade policymakers to pursue a “wait and watch” approach for the time being. Across the Atlantic, despite clear hints from the Fed Chief in last week’s testimony about the central bank’s stance going forward, today’s FOMC minutes is expected to attract attention in order to gauge underlying mood among policymakers. Housing market data from the US will also be watched.

Pound Sterling – UK Markets

The Pound weakened against its major peers and slipped below the crucial 1.67 mark against the greenback this morning, after data showed that the unemployment rate in the UK surprisingly rose to 7.2% for the three months to December. However, the number of claimant seekers continued to slide at a stable pace. Meanwhile, the minutes of the BoE’s latest monetary policy meeting offered no significant insights to monetary policy direction for the immediate future. Meanwhile, excitement ahead of today’s economic releases was fairly muted, as the central bank made its stance explicitly clear in its latest Quarterly Inflation Report, wherein the influence of unemployment data was blunted by embracing reliance on a wider range of economic factors for altering monetary policy. Meanwhile, with this week’s economic releases showing that consumer price inflation and the unemployment rate missed market estimates, it has become increasingly difficult to decipher the BoE’s future policy stance. For the day ahead, the FOMC minutes and crucial housing market data from the US holds relevance. This week’s retail sales data from the UK is also likely to have a bearing on Sterling in the near term.

US Dollar – US Markets

Disappointing New York manufacturing activity and NAHB housing confidence figures released yesterday weighed on the US Dollar against its major peers, casting doubts over the momentum of economic recovery in the world’s largest economy. The New York Empire state manufacturing data revealed that the region’s business conditions deteriorated sharply for February, mainly due to the unfavourable weather conditions prevailing in the nation that might also have a bearing on tomorrow’s manufacturing data. Meanwhile, the greenback is trading in a tight range versus the Euro in today’s trading session amid a lack of decisive economic triggers. Going forward today, markets will closely scrutinise the minutes of the Fed’s latest monetary policy meeting for further hints on the future course of QE3 tapering, especially considering the recent set of dismal macroeconomic data in the US. Market participants will also keenly watch the US housing starts report, scheduled later today, which is likely to show a decline for the second consecutive month in January, as harsh weather conditions and snowfall kept builders away from new construction activity.

Euro – European Markets

The Euro continued its upward march against the US Dollar yesterday, shrugging off broadly weak ZEW sentiment indices in Germany and the Euro zone. Data revealed that economic sentiment in the Euro zone and Germany unexpectedly deteriorated for February. However, the current situation index in Germany improved more than expected, providing some relief to Euro investors. At the same time, the Euro zone enjoyed a record current account surplus for 2013. The single currency received a further boost against the greenback following a dismal set of macroeconomic data from the US, raising concerns over the pace of economic recovery in the US. In today’s trading session, the Euro has taken a breather against the US Dollar. Later in the day, trading sentiment in the Euro-US Dollar pair will be largely influenced by today’s economic data in the US, especially the minutes of the US Federal Reserve’s January monetary policy meeting. Additionally, tomorrow’s services and manufacturing PMI data in key Euro zone economies will be closely watched and is expected to shed light on the region’s economic performance during the first quarter of 2014.

Other Currencies – Highlights

The Japanese Yen has pared some of yesterday’s losses against the majors this morning following an encouraging monthly economic update from the Bank of Japan, along with strong Nationwide department store sales data for January. Yesterday, the Japanese Yen witnessed heavy selling pressure after the Bank of Japan boosted lending to commercial banks while keeping its monetary policy stance unchanged at current levels, a move seen as the willingness of the central bank to pursue future easing if required. Additionally, given the sales tax hike in April 2014, further action from the central bank cannot be ruled out. The Bank of Japan Chief, Haruhiko Kuroda, tried to pacify markets by indicating that the economy was moving in line with the central bank's assessment. Going forward today, the FOMC minutes and Japan’s trade balance data have the potential to alter market sentiment. Additionally, the minutes of the Bank of Japan’s last policy meeting scheduled tomorrow will be keenly eyed for further direction.