US Services PMI also Disappoints

Although yesterday’s downbeat UK services PMI print disappointed markets, improving business sentiment in the nation bodes well for the recovery to gain further traction in the year ahead. The also disappointing service sector report from across the Atlantic is likely to raise some eyebrows, especially in the wake of the contraction in consumption demand for the first time in over four years. Additionally, markets will closely scrutinise every move of new Fed Chairperson Yellen as she assumes office next month. Meanwhile, the Euro zone economic recovery seems to be gaining traction with investor confidence in the currency bloc at a multi-year high. Also, the steadily improving Spanish economy has raised hopes of the peripheral nations contributing substantially to the region’s growth in the coming months.

Pound Sterling – UK Markets

In the run-up to yesterday’s domestic services PMI report, Sterling weakened against the greenback and the dismal PMI print further weighed on the Pound-US Dollar pair. Although growth in Britain’s dominant service sector unexpectedly eased to a six-month low for December, service sector activity remained firmly rooted in the expansion region. Additionally, the report also revealed rising optimism among businesses in the UK, signalling a further pickup in economic recovery in the year ahead. The Pound managed to gain some traction against the greenback later in the day after the release of an unexpectedly disappointing US ISM non-manufacturing report. With little of note on the domestic macro front today, the Pound is trading lower, albeit in a tight range against the majors this morning. Sterling investors will track global news flows for further direction to risk appetite in the session ahead. Market participants are keenly awaiting the BoE monetary policy meeting later this week and although the central bank is unlikely to alter its policy stance in the near term, investors remain on tenterhooks for insights into the BoE’s plans for 2014.

US Dollar – US Markets

The recent upward march of the US Dollar against the common currency was halted yesterday following the release of largely positive Euro zone economic data. The greenback’s woes were further compounded in the aftermath of the unexpectedly disappointing ISM services PMI print, largely due to a contraction in new orders. Meanwhile, Janet Yellen is all set to be the first female chairperson of the Fed in the central bank’s history after the US Senate approved her nomination for the position. Against the backdrop of the relatively stable US economic recovery of late, it remains to be seen what policy stance the newly appointed Fed Chief takes in the days ahead. The greenback is trading on a stronger footing against the single currency in today’s trading session. In the absence of major domestic economic data, speeches by Fed policymakers, Eric Rosengren and John Williams will keep markets interested today. However, minutes of the latest FOMC meeting tomorrow will gain significant market attention and will be closely scrutinised by investors for hints on any future tapering timeline.

Euro – European Markets

The improving investor confidence in the Euro zone propelled the common currency higher against the greenback yesterday, despite the release of mixed services PMI numbers across the Euro zone economies. Investor confidence in the currency bloc rose to its highest level since April 2011 for January, indicating an improved investor outlook towards the Euro zone economy amid a stabilizing labour market. Rising inflationary trends in Germany offered further support to the Euro against the majors. Additionally, the weak US non-manufacturing PMI report boosted the Euro’s gains against the US Dollar yesterday. The common currency is trading in a tight range against the majors in today’s trading session after data released earlier today showed little change in German labour market conditions for December. Later today, the Euro zone consumer price inflation report will be closely followed by investors for hints to the inflationary trend in the region and may weigh on the ECB’s policy decision later this week.

Other Currencies – Highlights

The New Zealand Dollar has shed yesterday’s gains and weakened against the US Dollar this morning ahead of the release of important Chinese economic data tomorrow. Recent macro releases from New Zealand’s major trading partner China, has painted a mixed picture of the Chinese economy and has weighed on the Kiwi Dollar of late, despite an improving domestic economy. Furthermore, “risk-off” sentiment in markets due to improved market confidence towards the US economic recovery has kept the Kiwi Dollar under pressure against the majors. With no domestic economic data on tap, trading sentiment in the New Zealand Dollar will be governed by news flows emanating from both sides of the Atlantic in the session ahead. Apart from the Chinese macro releases, a string of important economic data from the US and the Euro zone during the rest of the week will prove crucial for the New Zealand Dollar against its counterparts in the near term.