UK House Prices Fastest Rise Since 2007

Despite the BoE Governor, Mark Carney’s reassurances last week, refuting the possibility of a housing bubble in the UK, the latest housing market gains point to the contrary. Against this backdrop, the minutes of the last BoE meeting will gain market attention this week for policymakers’ views about the same. Across the Atlantic, the manufacturing PMI report this week will be closely followed, especially in the wake of continued improvement in the nation’s manufacturing sector over the past few months. In the Euro zone, the barrage of economic data during the week will gain market interest for further insights about the currency bloc’s economic recovery. Meanwhile in China, despite mixed economic data lately, the economy expanded more than market expectations during the final quarter of 2013.

Pound Sterling – UK Markets

Buoyed by better than expected UK retail sales report, the Pound strengthened against its counterparts on Friday. British annual sales soared 5.3% in December, the fastest rise in over nine years, largely on the back of a surge in Christmas shopping. However, comments by the BoE policymaker, Ben Broadbent, that a decline in the UK unemployment rate towards the central bank’s 7% threshold is unlikely to trigger an immediate hike in borrowing costs capped Sterling’s gains against the majors on Friday. Meanwhile, the Pound is trading in a tight range against the majors in today’s trading session. The Rightmove housing price index report released overnight showed that house prices in the UK rose at the fastest pace since November 2007 for January. With no major economic data on tap today, investors are already looking ahead to a slew of important domestic and global macro releases in the week ahead, including the BoE meeting minutes and the domestic unemployment report on Wednesday.

US Dollar – US Markets

Despite a mixed bag of domestic economic data, the US Dollar moved higher against the common currency on Friday. However, the US Dollar gains were essentially confined to the Euro, with the greenback weakening against the Pound following upbeat UK retail sales report. While US housing starts rose above market forecasts, building permits in the nation rose at a slower than expected pace for December, highlighting the obstacles facing the housing market recovery in the US. Additionally, the Reuters/Michigan consumer sentiment index in the US deteriorated unexpectedly for January, with lower and middle income households expressing concerns about the lacklustre improvement in the labour market. The industrial output, however, rose for the fifth successive month for December. The greenback is trading on a weaker footing against the Euro this morning. With no domestic economic data on tap today on account of a holiday, investors remain on the sidelines ahead of the release of crucial macro data in the week ahead, including the manufacturing PMI and housing market reports.

Euro – European Markets

The single currency weakened against both the Pound and the US Dollar on Friday tracking global economic news flows. With the UK and the US both reporting largely positive economic data, demand for the Euro remained subdued throughout the day. Additionally, the third consecutive fall in the Euro zone construction output for November further weighed on the common currency against the majors. Meanwhile, economic data from China, released earlier today, painted a mixed picture of the nation’s economic health, although fourth quarter GDP expanded at a better than expected pace. In Germany, downside pressures on producer prices seem to be easing, thereby raising prospects of improved economic growth in the near future. The positive German producer price index report has lifted the Euro against the US Dollar in today’s trading session. In the absence of major economic data, trading activity is likely to be subdued during the rest of the session today. Moving ahead, a slew of German and Euro zone macro releases during the course of the week will influence market sentiment towards the Euro-US Dollar pair.

Other Currencies – Highlights

The Australian Dollar has gained traction against its peers this morning after data released earlier today showed that economic growth in China, Australia’s biggest trading partner, beat analysts’ expectations during the fourth quarter of 2013. Additionally, a gauge of inflation in Australia rose sharply during the last month, further supporting the Aussie Dollar’s gains against the majors. Against this backdrop, Australia’s official consumer price inflation report later this week will be closely watched by market participants and an upbeat print will allow for further consolidation in the Aussie Dollar against its counterparts in the week ahead. However, with the Australian economy still not out of the woods, the RBA is expected to keep interest rates lower for a longer duration despite the pickup in inflation. Meanwhile, investors are looking ahead to the domestic consumer sentiment report and a slew of news flows emanating from both sides of the Atlantic during the rest of the week for further direction to risk appetite.