UK Retail Sales Soar

Investors at home will heave a sigh of relief following the release of an upbeat British retail sales report, especially since recent domestic macro numbers have been rather tepid. However, the buoyant numbers will have to be taken with a pinch of salt since heavy discounts and holiday purchases largely influenced consumption patterns during December. Data in the forthcoming months will offer more clarity. In the US, the labour market continues to improve irrespective of last week’s indifferent non-farm payrolls print and investors will remain glued to the host of US economic data today and next week for further direction. In the Euro zone, all eyes will be on today’s German Federal Constitutional court ruling regarding the constitutional legality of the ECB’s OMT policy.

Pound Sterling – UK Markets

Buoyed by the just out holiday-induced upbeat domestic retail sales print for December, Sterling has strengthened against the majors this morning. With retailers offering deep discounts during the Christmas shopping fervour and with price pressures easing, retail sales climbed sharply during December. The upbeat retail sales data has revived hopes of a positive British growth print in the final quarter of last year, particularly in the aftermath of relatively weak economic data lately. With little of note on the domestic macro front today, investors will be all eyes and ears to a speech by BoE policymaker, Ben Broadbent, for cues about the central bank’s policy stance going forward. In the absence of decisive domestic economic data, the Pound searched for direction against the majors yesterday. Later today, the Pound-US Dollar pair will take direction from important economic releases across the Atlantic. In the forthcoming week, domestic labour market data is likely to attract most market attention and an upbeat print might hasten a shift in the BoE’s policy stance. Additionally, minutes of the last BoE policy meeting and crucial housing market reports will also keep Sterling investors interested throughout the coming week.

US Dollar – US Markets

The US Dollar ended yesterday on a stronger footing against the common currency after fluctuating throughout the day. The unexpectedly upbeat initial jobless claims numbers kept the greenback supported against its peers. Meanwhile, the US consumer price inflation report offered no surprises, as price pressures remained muted despite higher energy and housing costs. Adding to the mixed economic data, the Minneapolis Fed President, Narayana Kocherlakota, called for more stimulus measures by the Fed to spur inflation, which continues to remain well below the central bank’s target. Meanwhile, outgoing Fed Chairman, Ben Bernanke, reinforced that the central bank’s unprecedented policy measures during his tenure helped in stabilizing the global financial system. The greenback is trading higher, albeit in a tight range, against the Euro in today’s trading session ahead of today’s crucial domestic economic reports, including the Reuters/Michigan consumer sentiment print which is expected to show an improvement. Moving forward, a string of domestic macro releases will keep investors on their toes during the next week.

Euro – European Markets

The common currency fluctuated against its major peers yesterday as investors preferred to remain on the sidelines following mixed Euro zone and German consumer price inflation reports. While the final German inflation report confirmed a marginal rising inflationary trend in the nation, the Euro zone numbers affirmed a deflationary trend in the currency bloc. Confirming the same, the ECB’s monthly report for January reinforced that loose monetary policy will remain in place for as long as necessary, citing subdued inflation expectations in the region. However, the Bundesbank President, Jens Weidmann, rebuffed talks of deflation in the Euro zone while supporting the ECB’s loose monetary policy stance. Meanwhile, the Euro is trading lower against the greenback this morning. Investors will closely follow the German Federal Constitutional court ruling regarding the constitutional legality of the ECB's OMT policy later today. Additionally, significant US macro data will sway the Euro’s movement against the US Dollar today. Looking ahead, Euro investors have their hands full in terms of domestic economic releases during the next week.

Other Currencies – Highlights

The Japanese Yen has strengthened against the majors this morning after the Japanese government raised its outlook for the nation’s economy for the first time in four months. However, the government’s positive assessment of the economy, citing improving consumer confidence and spending, contradicted a report released earlier today which showed an unexpected deterioration in consumer sentiment for December. Additionally, the Japanese Yen remained supported after relatively mixed US economic data yesterday dampened market sentiment towards the greenback and underpinned demand for the former. With no domestic economic data on tap during the rest of the day, market participants will keep a tab on US macro reports for further direction to risk appetite. Meanwhile, against the backdrop of a rising inflationary trend in the nation lately, next week’s BoJ monetary policy meeting will be closely eyed by investors for the central bank’s take on the same and for any alteration to its policy stance.