BoE Could Take the Lead

Upbeat labour market data from the UK further validated signs of buoyancy in the UK’s economy and continued to reinforce the belief that the BoE could be ahead of other major global central banks in abandoning its accommodative monetary policy stance. However, the BoE’s minutes once again reiterated that Britain’s unemployment rate reaching the central bank’s target rate would not automatically trigger tighter policy measures. Meanwhile, today’s manufacturing data showed that China continued to face the brunt of the recent economic slowdown, while developed economies such as Germany gained an edge over other emerging economies. Manufacturing and labour market data from the US will offer direction in today’s session.

Pound Sterling – UK Markets

The Pound hit a fresh one-year high against the Euro, whilst moving past the 1.65 mark versus the US Dollar following upbeat UK labour market numbers yesterday. With the unemployment rate within touching distance of the BoE’s threshold rate, well ahead of the BoE’s schedule, speculation of the central bank raising rates are higher, though the minutes of the BoE’s latest policy meeting revealed the contrary. The central bank indicated that it sees no immediate need to raise rates even if the unemployment threshold is met in the near future. Ian McCafferty, a MPC member, clarified that the BoE will provide further guidance when the unemployment rate reaches the target rate. Furthermore, public finances showed an improvement for December on the back of higher tax receipts and lower government spending in a steadily recovering domestic economy. Sterling has maintained its gains against the US Dollar and trading above the 1.66 mark in today’s session. With no major domestic economic releases ahead, the Pound-US Dollar pair will take direction from a slew of economic data across the Atlantic. A speech from Paul Fisher, a MPC member, later today will be scrutinised to determine individual members’ stance on the outlook for monetary policy.

US Dollar – US Markets

The US Dollar has weakened against the major currencies in today’s session, amid increased risk appetite following upbeat macroeconomic data from across the Atlantic. The PMI prints across Europe early today saw a steady improvement for January while upbeat UK labour data released yesterday continues to support Sterling. The greenback has remained supported against the major currencies this week amid increasing speculation that the US Fed would continue to scale back its monthly bond buying programme in the wake of an improving domestic economy. Going ahead, a slew of US economic releases later today will be watched to determine movement in the US Dollar versus its peers. While initial jobless claims are expected to remain unchanged, the forward looking leading indicators are expected to grow at a slower pace. The data will help traders gauge the prospects of further tapering by the US Fed ahead of the all-important monetary policy meeting next week, also the last meeting to be presided by the current Chairman, Ben Bernanke.

Euro – European Markets

After trading in a rather range bound session today morning, the single currency has strengthened against the US Dollar while coming off its one-year low versus the Pound following largely upbeat preliminary manufacturing and services activity reports for the Euro zone. Today’s data further validates belief that major economies in the Euro zone continue to tread on the path of economic recovery in 2014. The upbeat data has helped re-instill confidence in the Euro, temporarily diverting fears of the currency-bloc sliding into a deflationary environment. The Euro zone consumer confidence data later today will be eyed for further cues. Additionally, a host of economic data in the US will influence the Euro-US Dollar pair in the near term. Yesterday, the Euro weakened against the Pound, following encouraging jobs numbers in the UK and upbeat IMF forecasts. In an interview, Mario Draghi cautioned on the overall downside risks to Euro zone’s economic recovery, stating that it is still “weak and uneven”.

Other Currencies – Highlights

The New Zealand Dollar has slipped further against the US Dollar this morning after data showed that the Chinese manufacturing activity unexpectedly contracted for January. The Kiwi Dollar has been trading under pressure amid speculation that the US central bank would trim its monthly asset purchases at next week’s policy meeting. At home, the manufacturing sector remained in expansion mode, albeit dipping slightly for December. Additionally, consumer confidence for January surged to the highest level since January 2007, underpinning prospects for strong economic growth this year. This coupled with the unexpected rise in inflation for the December quarter have raised chances of the central bank hiking interest rates soon. Later today, events unfolding from both the sides of the Atlantic will help determine risk sentiment in the New Zealand Dollar going ahead.