Australian Employment numbers fall by 22.6k

The BoE Governor, Mark Carney’s comments yesterday, allaying fears of a housing market bubble in the UK confounded investors, especially in the wake of the central bank’s move to scale back a mortgage lending programme late last year. The BoE Chief also expressed confidence about continued economic recovery in the UK during 2014. In the US, economic recovery seems to be gaining momentum and another set of positive economic data yesterday supported view of an improving domestic economic landscape.. The dramatic turnaround in developed economies prompted the World Bank to upgrade its 2014 economic growth forecasts. Meanwhile, markets will closely follow today’s Euro zone inflation print and some important economic indicators in the US for further direction.

Pound Sterling – UK Markets

The Pound weakened against the greenback yesterday as the optimistic picture portrayed by the Beige Book survey on the US economy underpinned demand for the latter. Testifying before the UK Parliament, Mark Carney, the UK Governor, played down fears of a rising bubble in the nation’s housing market and opined that the current house price boom is set to cool in 2016. Overnight data added weight to his comments as the RICS house price balance unexpectedly receded from its 11-year high for December. Meanwhile, the World Bank sharply upgraded its global growth forecast for 2014, largely aided by robust growth prospects in developed economies. Meanwhile, Sterling is trading under pressure versus the US Dollar this morning. In the absence of major domestic events ahead, news flows emanating from across the Atlantic will influence the Pound versus the majors. Tomorrow’s domestic retail sales print will be under the spotlight, especially against the backdrop of slower than expected sales reported by the BRC last week. However, stable labour market and easing price pressures in the economy could have offered support to retailers.

US Dollar – US Markets

The greenback moved steadily higher against the majors yesterday largely on the back of the World Bank’s positive assessment of its economy going forward. In the latter half of yesterday’s session, upbeat domestic economic data further consolidated the US Dollar’s gains against its peers. The Beige Book survey report showed that the US economy expanded at a “moderate pace” from late November through December last year, with several regions offering a positive outlook of the economy. Meanwhile, the Empire state manufacturing index climbed to the highest level since May 2012, boosting expectations that the overall manufacturing activity in the US might remain strong during the rest of the year. Meanwhile, the US Dollar is looking for direction against the Euro this morning. Against the backdrop of the IMF Chief, Christine Lagarde’s comments yesterday that deflation threat continues to persist for advanced global economies, today’s domestic inflation report will attract significant market attention. Additionally, investors will track a raft of US economic data, notably the initial jobless claims report and a speech by Ben Bernanke due later today.

Euro – European Markets

The weaker than expected German GDP numbers for 2013 dragged the common currency lower against the US Dollar yesterday. Uncertainty surrounding the Euro zone crisis weighed on the performance of the Euro zone’s largest economy during the last year amid slower export growth. The unexpectedly strong Spanish consumer price inflation report also failed to arrest the Euro’s losses against the greenback yesterday. Additionally, the IMF Chief Christine Lagarde indicated that central banks in advanced economies may have to persist with loose monetary policies in the near future to support their fragile economic recovery and steer clear of deflationary fears. The comments added to market apprehensions about the ECB’s policy stance going forward. Against this backdrop, today’s Euro zone inflation report will be closely scrutinised by investors for further insights about the same. Meanwhile, the Euro is trading in a tight range against the US Dollar in today’s trading session. Meanwhile, the ECB monthly report reiterated that interest rates will remain at present or lower levels for an extended period of time. Apart from the domestic inflation print, a slew of US macro data will be on the investors’ radar in the session ahead.

Other Currencies – Highlights

The Australian Dollar has hit a three-year low versus the US Dollar in today’s trading session following dismal jobs data which showed the number of people employed in Australia unexpectedly declined by 22,600 for December. With the latest employment figures, the Australian economy added a net of 55,000 jobs during 2013, registering the lowest growth in the past seventeen years. While this has certainly jeopardised hopes of a domestic recovery, it has widened prospects for the Reserve Bank of Australia to impose further rate cuts to boost the economy. With US policymakers indicating a faster than expected tapering of the US Fed’s monthly bond buying programme, a barrage of economic releases in the US due later today will remain in focus to determine the Australian Dollar’s trend against the US Dollar in the near term.