At home, even though the housing market has shown signs of sustained momentum, the services PMI print has disappointed investors, weighing on the performance of Sterling against the majors. Against this backdrop, markets keenly await the BoE policy meeting due later this week for further hints.
Across the Atlantic, minutes of the latest FOMC meeting will offer insights into the action that took place ahead of the QE3 tapering decision. Additionally, the all-important non-farm payrolls report will be closely scrutinised by investors. In the Euro zone, although economic data has continued to confound investors, expectations of the economy picking up in 2014, as suggested by today’s positive Euro zone Sentix confidence data, will keep markets interested.
Pound Sterling – UK Markets
The domestic services PMI report showed that growth in the dominant UK services sector eased for December. However, service sector activity remains firmly in the expansion zone and is expected to positively reflect on the nation’s growth numbers for the final quarter of 2013. Recent upbeat domestic data has strengthened the case that the nation will maintain the pace of its economic recovery in 2014. Meanwhile, Sterling has weakened against the US Dollar this morning following the release of a weaker than expected services PMI print. Later today, George Osborne, will unveil a long-term economic plan wherein the UK Chancellor is likely to expand his austerity goals.
Meanwhile, after briefly nudging higher on Friday on the back of upbeat housing market data, the Pound continued to weaken further against the greenback. “Risk-off” sentiment prevalent in markets on account of increased optimism surrounding the US economy has largely contributed to Sterling’s recent losses against the US Dollar. Although, the BoE monetary policy meeting is expected to attract maximum market attention, the domestic industrial output and housing market reports will also be on investors’ radar in the week ahead.
US Dollar – US Markets
The US Dollar strengthened against its peers on Friday amid growing optimism among investors regarding the US economic recovery in the New Year and the possibility of further tapering of asset purchases by the Fed in the upcoming months. The belief was further reinforced following speeches by influential Fed policymakers. While the outgoing Fed Chairman, Ben Bernanke, stated that obstacles to the US economic recovery are slowly fading, Jeffrey Lacker, the President of the Richmond Fed, indicated that the central bank will consider scaling down QE3 further at its upcoming meetings citing a substantial improvement in the domestic labour market lately. Meanwhile, the Philadelphia Fed President, Charles Plosser, warned that the central bank may be forced to aggressively hike interest rates from their current levels.
The greenback has moved lower against the common currency in today’s trading session following the release of largely upbeat European services PMI reports. The ISM non-manufacturing PMI numbers later today will give further insights into the strength of the nation’s economic recovery. Moving forward, the non-farm payrolls report and the latest FOMC meeting minutes will keep investors on their toes throughout the week.
Euro – European Markets
Positive services PMI releases for most of the Euro zone economies earlier today has arrested the common currency’s recent losses against the US Dollar and has lifted the Euro-US Dollar pair close to the 1.36 mark in today’s trading session. Additionally, the buoyant Euro zone Sentix investor confidence report has further added to signs of a steady economic recovery in the currency bloc. Against the backdrop of the improving domestic economic environment, the ECB monetary policy meeting later this week will be closely scrutinised by market participants to ascertain the central bank’s take on the recent positive developments. Meanwhile, the German consumer price inflation report, which is expected to show a rising inflationary trend in the nation for December, will be keenly eyed by investors for further direction today.
In the aftermath of largely upbeat economic data from across the Atlantic of late, the single currency has weakened considerably against the greenback over the past few sessions, with the weak Chinese economic data adding further downside pressure on the Euro. Apart from the ECB policy meeting, a raft of crucial domestic and global macro releases will sway trading sentiment in the Euro-US Dollar pair.
Other Currencies – Highlights
The Australian Dollar is trading under pressure against its US counterpart this morning after the domestic services PMI report showed that services sector activity contracted for the 23rd consecutive month for December, highlighting that the nation’s economy is struggling despite the RBA adopting a loose monetary policy and amid a weaker Aussie Dollar. The Australian Dollar has also remained under pressure against the greenback after China, Australia’s biggest trading partner, reported weak manufacturing and services PMI numbers for December. Furthermore, “risk-off” trading sentiment among investors amid an improving US economy has also added to the Aussie Dollar’s woes against the majors.
In the absence domestic macro indicators, a slew of global economic data will drive movement in the Australian Dollar in the sessions ahead. Meanwhile, tomorrow’s domestic trade balance data and a barrage of Chinese and other economic releases from both sides of the Atlantic during the course of the week will prove crucial for the Australian Dollar against the majors in the near term.