UK Retail Sales Surprise

Despite today’s weak retail sales data from the UK, Sterling has reacted positively against the majors as traders believed that seasonal factors seem to have camouflaged the true state of affairs in the UK. However, domestic releases during the course of the week indicate that the British economy still remains susceptible. With the Fed expressing its intent to pursue a stance for scaling down its asset purchases, yesterday’s positive set of economic releases from the US offered support for the central bank to pursue its near term goals. The crucial GDP figures due in the latter half of next week will remain a key determinant for the Fed’s future policy moves. In the Euro zone, the European Commission’s economic growth forecast today takes centre stage.

Pound Sterling – UK Markets

The Pound has moved higher against its peers in today’s trading session. The retail sales data has surprised market participants on the downside, but a weaker print was largely expected, as seasonal factors were likely to reverse the surge in retail sales volumes observed in December. Meanwhile, today’s public finances data showed that the UK economy recorded a modest surplus, though these figures do not necessarily reveal an encompassing view of UK’s fiscal situation, as public finances data appear skewed possibly due to higher tax receipts traditionally witnessed in January. Next month’s Budget is likely to shed a clearer view on the UK’s overall fiscal situation and possibly offer deeper insights into the Chancellor’s austerity plans. In contrast to the weakness seen in Euro zone’s manufacturing activity for February, the CBI indicated that British factory orders rebounded. However, the positive data had no major influence on Sterling yesterday. Meanwhile, next week’s GDP and mortgage approvals data from the UK will hold significance in the near term.

US Dollar – US Markets

The US Dollar continued to trade on a firmer footing against its major counterparts yesterday after manufacturing activity reports across major European economies and China for February disappointed investors. Also, the American factory activity which accelerated at its fastest pace in nearly four years and the earlier reaffirmation from the Fed minutes of a continuous tapering of its monthly bond purchases programme supported gains in the greenback against the majors. The US consumer price inflation numbers did little to alter the trend in the US Dollar even after data indicated an accelerating trend for January but remained below the Fed’s benchmark target, thus suggesting that the central bank is likely to keep interest rates low for some time to boost growth. However, weak Philadelphia manufacturing activity data and a less than expected decline in initial jobless claims casted doubts over the underlying strength of the US economy. The greenback is trading broadly range bound against the common currency this morning. In the wake of disappointing housing sector reports released earlier this week, today’s existing homes sales report will be closely scrutinised to ascertain the impact of severe weather conditions on the overall January sales.

Euro – European Markets

The single currency declined against its major counterparts yesterday after data indicated that manufacturing activity in Euro zone, Germany and France deteriorated for February. This coupled with weak Euro zone consumer confidence data has further strengthened market belief that the Euro bloc’s economic recovery continues to be uneven and fragile. Additionally, services sector activity in the Euro zone and France failed to surprise markets on the upside, with an exception of Germany. Earlier, the German producer price index declined for the sixth consecutive month and at the fastest pace in nearly four years in January. This is likely to further deepen issues for the region, considering the threat of deflation engulfing the Euro zone economy. The single currency is trading in a tight range against the greenback in today’s trading session. Most of market attention today will be on the European Commission’s economic growth forecasts for further direction to risk appetite. In the forthcoming week, investors have their plate full in terms of macro releases, especially consumer price inflation, unemployment and sentiment indices in the Euro zone.

Other Currencies – Highlights

The Canadian Dollar weakened against the US Dollar yesterday, primarily supported by demand for the greenback after data showed that manufacturing activity in the world’s largest economy expanded at the fastest pace in almost four years for February. Additionally, softness in crude oil prices weighed on the performance of the commodity-linked currency. In today’s trading session, the Canadian Dollar is poised for some volatility against the majors ahead of the release of two crucial domestic economic data points, namely consumer price inflation and retail sales. While inflation numbers have been rather subdued in Canada, today’s release will be keenly eyed to gauge any improvement in inflation and the economy and could prompt the Bank of Canada to begin withdrawing from its dovish stance. Market participants expect weakness in both reports today, in part due to the severe winter weather conditions in both December and January and is likely to weigh on the performance of the Canadian Dollar against the majors.