UK Manufacturing Activity Strengthens

The just out UK manufacturing sector report has shown improvement for February, while housing market growth shows little signs of relenting. With house prices rising to multi-year highs, it remains to be seen if the BoE takes further measures to rein-in the housing market in its monetary policy meeting this week. The remaining service and construction sector data this week look set to dominate near-term market dynamics. On the global front, escalating geopolitical tension over Ukraine has alarmed global markets and raised demand for safe haven assets. Across the Atlantic, the US manufacturing numbers will gain market attention, while in the Euro zone, Mario Draghi’s speech will be the centre of attention in the session ahead.

Pound Sterling – UK Markets

The just out domestic manufacturing PMI report has shown that manufacturing activity in the UK improved for February. Today’s encouraging data has reversed the recent decelerating trend seen in the manufacturing PMI which had raised few eyebrows. Additionally, housing market continues to strengthen as indicated by the upbeat mortgage approvals print for January. Furthermore, a report by Hometrack released earlier today showed that house prices in the UK for February rose the most since April 2007. Meanwhile, market reaction to the strong economic data has been rather muted, with the Pound trading marginally higher against the US Dollar this morning. Later today, trading sentiment in the Pound-US Dollar pair will be influenced by some important US macroeconomic data. Sterling searched for direction against the US Dollar and weakened against the Euro on Friday, largely tracking international news flows. Meanwhile, the BoE Chief Economist, Spencer Dale, has opined that the recent unity among MPC policymakers with regards to altering interest rates is likely to be tested in the near future as the economy continues to expand and inflation remains under control.

US Dollar – US Markets

The US Dollar weakened against the common currency on Friday tracking the unexpectedly upbeat Euro zone inflation data and largely downbeat domestic macroeconomic reports. However, the greenback’s losses against the Euro were limited due to the ongoing tensions in Ukraine which increased the safe haven demand of the US Dollar. The US economy expanded at a slower than previously estimated pace during the final quarter of 2013 on the back of a fall in consumer spending. The slowdown in economic growth can be attributed to the prolonged government shutdown in October and the unexpectedly cold domestic winter. Meanwhile, consumer sentiment improved unexpectedly for February, raising hopes of increased consumer spending during the first quarter of this year. Meanwhile, the greenback is trading higher against its peers in today’s trading session as “risk-on” sentiment has taken a backseat amid concerns of the Ukrainian conflict escalating further, underpinning demand for safe haven assets. Investors will keep a tab on the ISM manufacturing PMI report due later today for further direction.

Euro – European Markets

The single currency is trading lower against the US Dollar in today’s trading session, despite the release of largely positive European manufacturing PMI reports earlier in day. “Risk-off” sentiment in markets, due to escalating tensions in Ukraine has raised the prospects of a war in Eastern Europe and increased flows towards the safe haven assets including the US Dollar. Meanwhile, upbeat revised European manufacturing PMIs for February will add to recent optimism that the Euro zone economic recovery will gain traction this year. Against this backdrop, a speech by the ECB President, Mario Draghi, today, just ahead of the central bank’s policy meeting this week, will gain market attention for his views about the region’s economy. The Euro moved higher against its peers on Friday following the release of surprisingly upbeat Euro zone consumer price inflation data which showed that inflationary pressures in the currency bloc are picking-up. The positive inflation data will give room for the ECB to maintain interest rates at their current levels. Apart from the ECB meeting, investors will keep a tab on the slew of important domestic macro reports this week for further direction.

Other Currencies – Highlights

The Aussie Dollar is trading range bound against its major counterparts in today’s trading session global risk off sentiment continue to weigh on the currency despite positive domestic economic data. While, manufacturing PMI remained in the contraction zone, manufacturing sector activity improved for February and new home sales pick up for January. The recent positive economic data and the RBA stance of maintaining stable interest rates in the near term has strengthened expectations that the central bank will maintain status quo with regards to policy stance in its monetary policy meeting tomorrow. However, mixed economic reports from Australia’s biggest trade partner, China, continue to weigh on the Aussie Dollar. With no more economic data on tap for today, investors in the Australian Dollar will closely follow news flows emanating from both sides of the Atlantic for further direction to risk appetite.