UK Mortgage Approvals Weaker than Expected

Housing market gains in the UK have largely surprised on the upside of late and the just out mortgage approvals report has continued the trend, albeit below expectations. However, with the BoE’s measures to curb housing gains set to come into effect in the coming months, the sustainability of the recent upswing in the housing market will surely be tested. Meanwhile, BoE officials seem to be on the same page concerning policy stance, with several policymakers advocating a continuation of the central bank’s accommodative stance. In the Euro zone, Mario Draghi continues to remain restrained in assessing the region’s economy. Against this backdrop, economic data in the coming months will be closely scrutinised. Likewise, the Fed policy meeting and important US macro releases next week will keep markets on their toes.

Pound Sterling – UK Markets

After climbing to more than a two-year high against the US Dollar yesterday, Sterling has moved lower against the latter this morning after data just out showed a weaker than expected rise in the UK mortgage approvals for December. The positive domestic economic data lately, particularly the retail sales and labour market reports, has added to speculation that the BoE will sooner than later alter its policy direction. However, BoE officials continue to rebuff market expectations. Just a day after MPC member Ian McCafferty highlighted the risks of raising interest rates too soon, Mark Carney and Paul Fisher indicated that despite the UK unemployment rate nearing 7%, the BoE is likely to maintain the current low rates. Fisher also expressed concerns that an immediate hike in interest rates will hamper the economic recovery. Meanwhile, Sterling rose to a 29-month high against the greenback, whilst moving lower against the Euro yesterday. A report released by the CBI showed that retail sales volumes in the UK eased considerably for January, further highlighting that December retail sales numbers were largely skewed by holiday shopping. Sterling investors will closely track crucial domestic macro releases next week for further direction.

US Dollar – US Markets

The US Dollar weakened against both the Pound and the Euro yesterday following the release of upbeat European manufacturing and services PMIs reports. Later in the day, largely downbeat domestic economic data added to the greenback’s woes against the majors. While the flash Markit manufacturing PMI in the US slipped to a three-month low for January, the number of people claiming jobless benefits also rose unexpectedly, albeit marginally, for the past week. Additionally, existing home sales in the US also increased at a slower than expected pace for December. Yesterday’s unexpectedly weak economic data, together with the latest disappointing non-farm payrolls numbers, validates the prevalent belief that systemic risks still prevail. Meanwhile, the greenback is trading higher against the common currency in today’s trading session. With no domestic macro data on tap today, investors will keep a tab on comments by luminaries attending the World Economic Forum. In the forthcoming week, apart from the Fed meeting, a slew of important macro-economic data including the US fourth quarter GDP numbers and consumer confidence report, among others, will gain market interest.

Euro – European Markets

The single currency strengthened against the US Dollar and the Pound yesterday amid a barrage of positive domestic economic data. The buoyant preliminary manufacturing and services PMIs across the Euro zone economies indicates improving business activity in the currency bloc and bodes well for the region’s march towards sustained economic recovery. Reflecting the upbeat mood, consumer sentiment in the Euro zone climbed to a thirty-month high for January, further supporting the common currency against the majors. However, the ECB President, Mario Draghi, warned against undue optimism surrounding the Euro zone economic recovery, stating that “inflation and deflation risks are limited” and that the central bank will maintain price stability in the region. Against this backdrop, next week’s Euro zone consumer price inflation numbers will grab significant market attention. Meanwhile, the Euro is trading in a tight range against the US Dollar in today’s trading session. With little of note on the domestic macro front, Euro investors will closely scrutinise a speech by Mario Draghi later today. Moving forward, domestic and global economic data will keep investors in the Euro-US Dollar pair interested in the forthcoming week.

Other Currencies – Highlights

After treading lower and falling to the lowest level since July 2009 against the greenback yesterday, the Canadian Dollar has strengthened against the majors this morning. The upbeat retail sale report yesterday came in a day after the Bank of Canada maintained its policy rate at 1% in its meeting on Wednesday. However, the BoC Governor, Stephen Poloz, hinted at the possibility of a rate cut in the coming months, especially in wake of the bleak domestic inflation outlook along with the worrying slowdown in exports. The dovish stance by the central bank weighed on the Canadian Dollar against its peers. With the BoC expressing concerns over the subdued inflationary pressures lately, today’s domestic consumer price inflation data will be closely followed by investors and further easing in the nation’s inflation will add to downside pressures on the Canadian Dollar against its peers. Looking ahead, in the absence of decisive domestic economic data, news flows emanating from both sides of the Atlantic will prove crucial for the Canadian Dollar against the majors next week.