Following a surprisingly swift improvement in the domestic labour market and with inflation easing to the BoE’s comfort levels, the just released GDP numbers, which came in line with market consensus, will add further weight to arguments calling for the central bank to abandon its cautious approach. With policymakers hinting at further alterations to BoE’s forward guidance, such a move in the near future cannot be ruled out.
Across the Atlantic, while investors will remain glued to the two-day FOMC meeting beginning today, the string of important economic releases are also expected to gain considerable market attention in the session ahead. In the Euro zone, crucial macro data during the rest of the week will keep investors on their toes.
Pound Sterling – UK Markets
While Sterling breached the 1.66 mark against the greenback this morning in the run-up to the UK GDP report, the Pound has shown little reaction against the majors after the just out growth numbers failed to surprise markets on the upside. However, the robust pace of economic expansion during the final quarter of the last year has confirmed the notion that the nation has indeed emerged from its economic slowdown. With expectations of further consolidation in growth during the year ahead, it remains to be seen if the BoE responds by initiating a swift rate hike in the near future. The steady and unexpected improvement in the domestic labour market and subdued inflation lately have led to mixed voices emerging from the central bank’s MPC members, thereby casting some uncertainty over the BoE’s next policy moves.
Meanwhile, despite the absence of major domestic economic data, the Pound strengthened against both the US Dollar and the Euro yesterday. Later today, a raft of macro releases from across the Atlantic will determine trading sentiment in the Pound-US Dollar pair.
US Dollar – US Markets
The US Dollar moved higher against the common currency in early trading yesterday amid expectations of a further tapering to the Fed’s QE3 programme, but failed to add to its gains following the release of the mixed set of domestic economic data later in the day. With domestic macro data unable to offer a clear picture of the economic environment in the world’s largest economy, it remains to be seen whether the Fed adopts a wait and watch approach with regards to scaling down QE3 for the time being. Meanwhile, the US services PMI report yesterday showed further expansion in the services sector in the nation, while the Dallas Fed manufacturing index also inched up for January. However, severe weather in the US in December weighed on new home sales for the month, with expectations of the trend continuing for the current month.
Meanwhile, the greenback is trading higher against the Euro in today’s trading session ahead of the slew of important domestic economic data, including consumer confidence and durable goods orders today. However, investors are likely to stay on the sidelines ahead of the Fed monetary policy meeting outcome tomorrow before making a move.
Euro – European Markets
The common currency weakened against the majors yesterday, despite upbeat German economic data which showed that business sentiment in the Euro zone’s largest economy climbed to the highest level since June 2011. The positive sentiment indices released lately have raised expectations of the nation driving the Euro zone economic recovery in 2014. Meanwhile, Bundesbank President, Jens Weidmann has supported the ECB President, Mario Draghi’s view that although the Euro zone has witnessed a gradual recovery over the past few quarters, this recovery continues to remain fragile and uneven. Weidmann also reiterated that interest rates will remain at lower levels for an extended period of time.
The Euro is trading on a weaker footing against the majors in today’s trading session. With little on the domestic macro front in the session ahead, investors in the Euro-US Dollar pair will track economic data scheduled across the Atlantic for further direction. Moving forward, the Euro zone and German consumer price inflation numbers due later this week will be closely scrutinised by investors and any further deceleration in inflation will weigh on the Euro against its peers.
Other Currencies – Highlights
The Australian Dollar has strengthened against its counterparts this morning after data released earlier today showed that business conditions in the nation improved to the highest in over two years for December. The sharp improvement in Australia’s business conditions has increased speculation that the Reserve Bank of Australia might refrain from further loosening its policy stance in the near future. The relatively strong domestic currency and weak economic growth lately has compelled the RBA to ease interest rates to record low levels to support the Australian economy as it shifts away from mining driven growth.
With little on the domestic front to alter market sentiment during the week, the Aussie Dollar will take direction from news flows emanating from both sides of the Atlantic, especially the Fed monetary policy meeting and the US GDP report, together with important Chinese economic data over the weekend.