Despite the slightly weaker than expected annual GDP print, the second estimate of the UK growth numbers has confirmed a robust domestic economic recovery during the final stretch of last year.
Across the Atlantic, mixed macroeconomic data continues to confound investors about the strength of the US economic recovery and could possibly weigh on the Fed’s decision regarding continuation of its QE3 tapering in its upcoming policy meetings. In the Euro zone, German consumer confidence rose unexpectedly for March, as sentiment indices continue to paint a positive picture of the economy.
Pound Sterling – UK Markets
The just released domestic fourth quarter revised GDP report annual growth numbers missed preliminary estimates, but still shows that the UK economy had grown by 0.7% in the fourth quarter. The considerable rise in business investments, together with a pick-up in exports contributed to the UK economic recovery during the fourth quarter of 2013. However, the Pound has remained range bound following the release of the GDP report.
Meanwhile, with traders looking for clarity over the future course of monetary policy in the UK, MPC member, Ian McCafferty indicated that he does not rule out the possibility of the BoE raising interest rates in the spring of 2015, but added that he will be watchful of inflationary risks. During yesterday’s volatile trading session, Sterling momentarily breached the 1.67 mark against the greenback following the release of buoyant domestic economic data as mortgage approvals for January rose to the highest level since September 2007. Additionally, in sharp contrast to last week’s official retail sales numbers, data from CBI showed that the UK retail sales volumes for February at the fastest pace since June 2012. With no more domestic economic data on tap today, macro releases from the US will drive trading sentiment in the Pound-US Dollar pair.
US Dollar – US Markets
The greenback was volatile against its majors yesterday as mixed set of macroeconomic reports sent investors rethinking about the pace at which the US Fed will dismantle its monetary stimulus. Earlier yesterday, data showed that house prices in the US edged up marking the tenth consecutive quarterly increase in the fourth quarter of 2013. However, an unexpected drop in the US consumer confidence for February seemed to have an adverse impact on the greenback, as traders remain wary of prospects of the Fed being disinclined to taper QE3 in the near term. Also, Richmond manufacturing activity indicated that unfavourable weather conditions severely impacted its manufacturing shipments. Tomorrow’s Congressional testimony by Fed Chief, Janet Yellen remains a key event in the horizon, as she is bound to draw questions related to the central bank’s stance in the midst of the recent patch of gloomy economic data.
Today’s trend in the Euro-US Dollar is likely to be influenced by new home sales data due later in the session, which might show a decline for a third consecutive month for January, likely to be hurt by unusually bad weather conditions.
Euro – European Markets
The single currency advanced against its majors after data revealed that the Euro zone’s largest economy expanded at the fastest annualised pace in the fourth quarter of 2013 since the three months through March 2012. However, gains were limited following continued fears of deflation in the region. The European Commission (EC) upwardly revised its growth forecast for the 18-nation region to 1.2% for 2014 which strengthened the single currency against most of its major counterparts. However, the EC also lowered its inflation forecast for this year to 1% and warned that debt levels in several peripheral countries will continue to rise.
Today, the reaction in the Euro against the majors was muted even after data indicated that German consumer confidence rose to a seven-year high, suggesting that the German economy is gaining broad-based strength following an upbeat sentiment data released earlier in the week. With little data due today, market participants await tomorrow’s Janet Yellen’s testimony before the US Senate.
Other Currencies – Highlights
The New Zealand Dollar is trading in a tight range against the majors in today’s trading session as investors remain on the sidelines ahead of the release of domestic trade report later today. Market sentiment continues to remain a little fragile in the aftermath of mixed economic data from the US, with the Kiwi Dollar searching for direction against its US counterpart yesterday. However, inflation expectations in the nation remained steady for the first quarter of 2014. With inflationary pressures rising and the RBNZ Governor, Graeme Wheeler, indicating that a hike in interest rates is imminent, the Kiwi Dollar has steadily strengthened against its peers over the past few weeks.
Apart from the domestic macro releases, investors in the New Zealand Dollar will also keep a tab on important economic data from the US today for further direction to risk appetite.
BoE less likely to increase interest rates in May
UK’s CPI figure in spotlight, as the Pound value drops
Sterling slumps after lower than expected CPI results