Mortgage Approvals in the UK Rise

The knock on effect of the upbeat mood on Wall Street spilled over to currency markets, with the Euro and Sterling recovering from yesterday’s lows. Although traders remain geared up for crucial economic releases in the latter half of this week, there appears some anxiety ahead of today’s consumer confidence figures from the US in order to ascertain if consumer segments of the economy are impacted by harsh weather conditions. Supported by buoyancy in the UK housing sector, data from the BBA just released showed an increase in loans for home purchases. Meanwhile, today’s GDP figures from Germany offered encouraging signals, as growth was largely supported by investment activity in the economy.

Pound Sterling – UK Markets

The Pound registered gains against the US Dollar in today’s trading session, largely backed by the overall strength seen across riskier asset classes following yesterday’s rally in equity markets. Meanwhile, the just out BBA data showed that loans for home purchases in the UK rose more than expected for January, reflecting the overall strength in the UK housing sector. However, market participants are likely to keenly eye the CBI retail sales survey due later today for a closer view on the retail sector trend, as last week’s official figures for January offered little insights on account of the apparent influence of seasonal variations. Besides, tomorrow’s UK GDP figures will attract maximum attention in order to gauge if economic growth in the fourth quarter was supported by capital investment from Britain’s private sector. With the Pound once again nudging closer to the 1.67 mark against the greenback, today’s economic releases from the US and tomorrow’s GDP figures from the UK are likely to determine if Sterling will scale fresh intermediary highs against the US Dollar in the next few trading sessions.

US Dollar – US Markets

In the initial trading session yesterday, the greenback lost some ground against the Euro following an unexpected improvement in German business climate index for February. Also, reports that Ukraine might obtain international aid to avoid default improved investors’ risk appetite. Later, the greenback reversed its losses amid ongoing concerns that the ECB might resort to further measures to stave off the risk of deflation in the region. The disappointing regional manufacturing reports from the Chicago and Dallas regions had minimal impact on the US Dollar, as these data points looked distorted due to severe weather conditions in the US. The US Dollar is trading on a weaker footing against its majors in today’s trading session ahead of key US economic data, especially consumer confidence, which is likely to show deterioration for February. Other economic reports including housing data is also expected to be weak, in sync with the recent spate of mostly downbeat domestic macroeconomic data, thus casting doubts over economic recovery in the US. Any further deterioration in economic outlook of the world’s largest economy is likely to weigh on the performance of the US Dollar against the majors.

Euro – European Markets

The single currency traded near its session highs against the US Dollar yesterday after German business sentiment unexpectedly rose to a highest level since July 2011 for February, suggesting that economic recovery in the region’s largest economy picked up some momentum in the early months of 2014. However, the Euro came under pressure later during the day after Ignazio Visco, an ECB official, hinted at the possibility of policymakers discussing the introduction of negative deposit rate at their upcoming policy meeting next month. Moreover, data showed that consumer prices on a monthly basis dropped for January, raising concerns over a potential deflation facing the region. The Euro has moved marginally higher against the greenback in today’s trading session. The final reading of German economic growth for the fourth quarter of 2013 remained unchanged compared to the previous estimate. In a noteworthy development, Italian Prime Minister, Matteo Renzi, won a confidence vote in the Senate, giving his new coalition government a first indication of backing in the parliament. Going forward, the Euro investors will keep a close watch on the European Commission’s economic growth forecasts for further direction.

Other Currencies – Highlights

The Japanese Yen has strengthened against most of the high yield currencies this morning as investors remained wary of taking risks amid concerns that recovery in the US is losing momentum and persistent deflation risks facing the European economy. Data released earlier today showed that corporate service prices in Japan grew at a slower pace for January while small business confidence deteriorated for February. Though these releases portrayed a dismal picture of the Japanese economy, it had minimal impact on the direction of the Japanese Yen against the majors. With a light domestic economic calendar for today and tomorrow, market sentiment is likely to be swayed by some important economic indicators scheduled in the US and Europe. However, a raft of crucial economic indicators in Japan due Thursday, including consumer price inflation, unemployment, industrial production and retail sales, will prove crucial for the near term trend of the Japanese Yen against the majors. These reports will provide further insights into whether the unprecedented measures adopted by the Bank of Japan to boost the Japanese economy is working or not.