Despite several FOMC members hinting at a further $10 billion tapering this month, the Fed maintaining status quo with regards to QE3 in its meeting today cannot be completely ruled out, especially in the aftermath of the mixed domestic economic data lately, particularly the unexpectedly weak latest non-farm payrolls numbers. Also, the post meeting press conference by outgoing Fed Chief will be closely scrutinised by investors for insights into the future.
At home, Mark Carney’s speech today will be the major attraction for markets and his take on the economy following yesterday’s positive growth numbers will be closely followed. In the Euro zone, following today’s upbeat German consumer sentiment report, crucial economic data over the next two days will be eyed.
Pound Sterling – UK Markets
Although yesterday’s UK GDP print failed to offer any upside surprises, the 1.9% annual pace of expansion in the fourth quarter of 2013 was the fastest since 2007, with the nation’s dominant services and manufacturing sectors contributing to the robust growth numbers. The UK government’s economic recovery plan and the BoE’s policies to counter the economic slowdown seems to have offered support, with the domestic economy expanding every quarter during the past year along with a steady improvement seen in the labour market. However, it remains to be seen if the current pace can be sustained in the future, especially after the roll back of some of the growth inducing government schemes and the BoE’s accommodative policy stance.
Meanwhile, after fluctuating against the majors yesterday, the Pound has moved higher, albeit marginally, against the greenback this morning. Data released earlier today, showed a higher than expected rise in the domestic house prices for January. Later today, a speech by the BoE Governor, Mark Carney, will be on investors’ radar. However, the FOMC policy meeting outcome is expected to drive movement in the Pound-US Dollar pair in the session ahead.
US Dollar – US Markets
The US Dollar continued to fluctuate against the majors yesterday as investors remained on the sidelines ahead of the outcome of the Fed monetary policy meeting today and amid mixed domestic economic data. Durable goods orders in the US unexpectedly fell by the most in five months for December, contradicting the upbeat manufacturing report released earlier this month. However, consumer confidence soared to a five-month high for January in the midst of an improving labour market and business conditions. Additionally, a report by S&P/Case Shiller showed that house prices in the US rose the most in eight-years for November. Meanwhile, Treasury Secretary, Jacob Lew, has called for the Congress to swiftly raise the nation’s debt limit stating that the extraordinary steps taken to avoid hitting the debt limit will be exhausted by February end.
Meanwhile, the greenback is trading on a weaker footing against the majors this morning. With recent economic data unable to confirm a steady economic recovery in the US, it remains to be seen if the Fed will once again opt to scale down its asset purchases today.
Euro – European Markets
Complementing the buoyant business sentiment reports lately, a report by the Gfk released earlier today showed that German consumer confidence climbed to a six-year high for February. However, the upbeat print has failed to reflect on the Euro this morning as the currency continues to trade range bound against the majors. The rise in German sentiment indices bodes well for the faltering Euro zone economic recovery, with expectations that the currency bloc’s largest economy will lift the region from its prolonged slowdown. Against this backdrop, tomorrow’s German inflation and unemployment reports will be closely watched by Euro investors for further direction.
The single currency searched for direction against the greenback yesterday amid lack of domestic macro data as investors remained sceptical ahead of the outcome of the FOMC policy meeting today. A further reduction in bond purchases by the Fed will weigh on the Euro-US Dollar pair in the session ahead. Meanwhile, investors will also keep a tab on the Euro zone consumer price inflation numbers later this week for further direction to risk appetite.
Other Currencies – Highlights
The Swiss Franc has pared its early morning losses today and moved higher against the majors following a robust improvement in the private consumption trend in the nation. The upbeat UBS consumption indicator signals a pick-up in the overall economic activity in Switzerland and underlines the positive impact of the SNB’s cap on the Swiss Franc in effect since 2011. However, the currency could come under pressure against the greenback in today’s trading session in case the Fed decides to further continue tapering its stimulus programme in the monetary policy meeting later today.
With no more domestic economic data scheduled for release today, investors in the Swiss Fran will closely follow the Swiss KOF leading indicator print tomorrow for further direction to risk appetite. Additionally, a raft of news flows emanating from both sides of the Atlantic during the week will prove crucial for the Swiss Franc against the majors in the near term.