UK Labour Market Strengthens

Coming on the heels of yesterday’s expectedly upbeat IMF growth forecasts for the UK, the just released domestic labour market numbers have further added gloss to the positive economic environment at home. Furthermore, this has added to already increasing calls for a tightening of policy stance by the BoE. It remains to be seen if the BoE alters its direction in the near future. The IMF also presented a positive outlook for the US and the Euro zone economies for 2014, while at the same time warning about the threat of deflation and endorsing the continuation of accommodative policies in the near term. Markets will closely scrutinise macro data from the US and the Euro zone in the coming days for further direction.

Pound Sterling – UK Markets

The just out domestic labour market report has added further traction to yesterday’s sterling gains against the majors this morning. The UK unemployment rate fell to 7.1%, moving closer to the BoE’s 7% threshold, while the number of unemployed people in the nation also continued to decline, albeit at a slower pace, for December. Additionally, with the UK government sticking to its austerity stance, public finances also remained under control for December. The just released minutes of the latest BoE monetary policy meeting have failed to offer much in terms of the central bank’s intent to revise its forward guidance, despite the steadily improving employment and inflation trends in Britain. Sterling moved higher against its peers yesterday after the IMF sharply raised its UK growth forecast for 2014 to 2.4% from 1.9% projected in October, while also lending support to the BoE Governor, Mark Carney’s policy stance to keep interest rates at their current low levels. However, the weaker than expected CBI factory orders print, which was largely in sync with the downbeat manufacturing PMI numbers, took some sheen off the Pound’s gains against the majors yesterday.

US Dollar – US Markets

The US Dollar began trading on a stronger footing yesterday, but tailed-off during the latter part of the day to end nearly unchanged against the common currency. The lack of domestic economic data recently has largely contributed to investors’ indecisiveness towards the greenback. The IMF’s positive assessment of the US economy for 2014 also failed to lift the greenback against the single currency. The IMF projected the US economy to expand by 2.8% this year, citing the recent budget agreement that will reduce some of the government spending cuts. However, the IMF also warned of underlying disinflationary trends in developed economies that may derail the nascent economic recovery. Meanwhile, the greenback has moved higher against the Euro in today’s trading session. With little on the domestic economic front to cheer market participants, investors will closely follow events unfolding at the World Economic Forum which begins today. Furthermore, tomorrow’s domestic manufacturing PMI, labour and housing market reports, along with the slew of Euro zone economic data, will keep investors on their toes throughout the day.

Euro – European Markets

The common currency searched for direction against the greenback yesterday in the midst of mixed domestic economic data and the IMF’s growth projection for 2014. The German economic sentiment unexpectedly deteriorated for January, dampening recent optimism over the health of the Euro zone’s largest economy. However, the ZEW economic sentiment for the Euro zone rose above expectations. Meanwhile, the IMF has projected the Euro zone economy to expand by 1% during the current year, while stating that the threat of deflation poses one of the biggest risks to the currency bloc’s economic recovery. However, the IMF downgraded forecasts for Italy and France, citing the nations’ struggles in reforming their respective economies. The single currency has weakened against the majors in today’s trading session. In the absence of major domestic macro releases today, Euro investors will remain largely on the sidelines ahead of the Euro zone manufacturing and services PMI reports tomorrow. Meanwhile, market participants will closely scrutinise news flows emanating from the World Economic Forum beginning today for further direction.

Other Currencies – Highlights

The Japanese Yen is trading on a firmer footing against most of its peers this morning as the Bank of Japan, in its monetary policy meeting earlier today, continued to maintain status quo on its policy stance. The BoJ also kept its inflation expectations unchanged but eased the nation’s growth forecasts slightly to 1.4% for the current year, differing with the IMF’s upbeat assessment of the Japanese economy yesterday. The IMF raised Japan’s growth projection to 1.7% for 2014, predicting that further stimulus measures will help offset part of the planned consumption tax hike impact later this year. Meanwhile, the BoJ Governor, Haruhiko Kuroda’s comments that downside risks to the Japanese economy are receding and that additional stimulus measure may not be required if risks do not materialize has offered further support to the Japanese Yen against the majors. With little on the domestic economic front during the rest of the week, investors in the Japanese Yen will closely track news flows emanating from both sides of the Atlantic for further direction to risk appetite.