UK Industrial Production Surprises on the Downside

As expected, both the BoE and the ECB refrained from introducing any policy shifts at their respective meetings yesterday. The BoE was reluctant to alter forward guidance, despite evident signs of an improving economy. However, markets were largely influenced by the doveish tone adopted by the ECB President in his post meeting press conference, hinting at further policy loosening if inflation in the currency bloc slides to dangerously low levels. At home, Sterling has come under pressure against the majors this morning following weak industrial production numbers. Going forward today, the all-important US non-farm payrolls report will gain maximum market attention, particularly as recent employment reports have pointed towards a steady improvement in the labour market.

Pound Sterling – UK Markets

The Pound continued to search for direction against the US Dollar throughout yesterday’s trading session, as investors’ expectations of a revision to the BoE’s thresholds for considering a change in borrowing costs were dashed after the central bank maintained its forward guidance in its monetary policy meeting yesterday, leaving markets confounded about the possible timing of an interest rate hike. The largely upbeat domestic trade data also failed to initiate a rally in the Pound-US Dollar pair. Additionally, upbeat US economic data released later in the day weighed on the Pound against the greenback. However, Sterling rose to one-year highs against the Euro following doveish comments made by the ECB President yesterday. Meanwhile, data just out has shown that the annual UK manufacturing and industrial output grew at a slower than expected pace for November, dragging the Pound lower against the majors. Later today, Sterling investors will keep a tab on the NIESR GDP estimate for further insights to the UK growth trajectory during the final quarter of 2013. However, the US labour market report is likely to drive trading sentiment in markets in the session ahead.

US Dollar – US Markets

The greenback rose sharply against the common currency yesterday before shedding some of its gains later in the day. The US Dollar benefited from a wide scale selling of the Euro triggered by doveish comments from the ECB President, Mario Draghi yesterday. Additionally, better than expected initial jobless claims numbers further validated signs of recovery in the US labour market, thereby supporting the greenback against the majors. The upbeat initial claims report was in sync with the positive ADP employment print released earlier this week and expectations of an upside surprise in today’s non-farm payrolls report cannot be ruled out, despite analysts forecasting a slight dip in numbers. The greenback is trading in a tight range against the Euro this morning after an overnight statement by Narayana Kocherlakota, the Minneapolis Fed President, calling for more stimulus measures to support the economic recovery. Meanwhile, market participants continue to remain on the sidelines ahead of today’s domestic labour market report. Looking ahead, a string of important domestic macro data will keep investors on their toes during the next week.

Euro – European Markets

Following the unexpectedly doveish statement by the ECB President, Mario Draghi, the common currency weakened against the majors yesterday. Although the ECB maintained the status quo with regards to its policy, Draghi’s post-meeting press conference ruffled some feathers after the ECB Chief opined that the central bank will respond aggressively in case of further downside pressures on inflation, while also reinforcing that accommodative monetary policy will stay for as long as needed. His comments fuelled widespread selling in the Euro yesterday, amid fears of a further loosening in policy in the near future. However, the upbeat Euro zone sentiment indices limited the downside risks in the common currency against the US Dollar yesterday. Against the backdrop of Draghi’s comments, next week’s crucial Euro zone and German consumer price inflation data will be closely watched by Euro investors. Meanwhile, the single currency has limited its upside against the greenback today ahead of the final reading of the Euro zone GDP for the third quarter. Additionally, any volatility arising out of the US non-farm payrolls report due later in the day cannot be ruled out.

Other Currencies – Highlights

The Swiss Franc has somewhat limited yesterday’s upward momentum against the US Dollar this morning following the release of downbeat domestic consumer price inflation data for December. The easing inflation trend is unlikely to see the SNB adopt a hawkish view with regards to its policy in the near term. Additionally, data released earlier in the day showed that the non-seasonally adjusted Swiss unemployment rate rose to 3.5% for December, further weighing on the currency against the majors. The Swiss Franc had nudged higher against the US Dollar yesterday, but the gains were limited in the midst of the improving labour market conditions in the world’s largest economy. With little on the domestic macro front, the Swiss Franc is expected to track global economic news flows in the session ahead for further direction. In the forthcoming week, investors in the Swiss Franc will closely track the domestic retail sales report, along with a raft of international economic data, for further direction to risk appetite.