Ukraine Tensions Impact Markets

Media reports indicating a pullback of troops in Ukraine by Russia has provided some relief to market participants this morning. Subsequently, safe haven currencies, including the US Dollar and the Japanese Yen, have moved lower from their recent highs against riskier currencies. With little on the global macro front today, “risk-on” sentiment is expected to prevail in markets for the rest of the day. However, with a raft of important macroeconomic data lined up this week, including central bank meetings in Europe and the US non-farm payrolls report, investors are unlikely to get a respite. At home, yesterday’s positive macro reports showed that economic recovery is firmly on track, although the just out construction PMI eased more than expected for February.

Pound Sterling – UK Markets

The buoyant domestic economic data generated little interest among Sterling investors and only momentarily arrested the currency’s losses against the US Dollar yesterday, as persistent tensions in Ukraine continued to weigh on the currency pair. The UK manufacturing PMI rose for February, reversing the recent downward trend and employment in the sector climbed at the fastest pace since May 2011, suggesting a broad economic recovery. Additionally, housing market recovery in the UK continued to gain momentum for January as mortgage approvals rose to the highest level since November 2007. Meanwhile, the Pound is trading on a firmer footing against the majors in today’s trading session amid media reports of receding tensions in Ukraine. The just released domestic construction PMI report has shown a higher than expected easing in activity in the sector for February, although it has stayed firmly in the expansion zone. With little on the global macro front to alter market sentiment today, investors are looking forward to the domestic services PMI report due tomorrow for further direction.

US Dollar – US Markets

The US Dollar maintained its recent winning streak against the majors yesterday as “risk-off” sentiment continued to prevail in markets, underpinning demand for safe haven assets including the greenback. Additionally, better than expected domestic manufacturing PMI numbers supported the greenback against its peers. The ISM manufacturing report showed that manufacturing activity in the nation rebounded from an eight-month low for February, led by a pick-up in new orders. Meanwhile, the greenback has moved lower against its majors in today’s trading session as risk appetite amongst investors improved following reports that Russia has recalled troops from the troubled Crimea region in Ukraine. In the absence of major domestic economic data today, risk sentiment in markets will undoubtedly be governed by events unfolding in Ukraine. Looking forward, investors will keep a tab on the string of important macro reports scheduled during the course of the week, including the ISM non-manufacturing report, the Fed Beige Book and the all-important labour market report for further direction. Additionally, speeches by FOMC policymakers will keep market participants interested in the week ahead.

Euro – European Markets

Yesterday’s upbeat European manufacturing PMI reports and Mario Draghi’s statement that the Euro zone economic recovery is on track did little to alter the “risk-off” sentiment prevalent in markets over the past two trading sessions, dragging the common currency lower against the US Dollar. The Euro zone manufacturing activity expanded for the eighth consecutive month for February, helped by a pick-up in almost all major economies in the currency bloc. Manufacturing activity in France also rose, but remained marginally in the contraction region for February. In the wake of upbeat manufacturing numbers and last week’s positive inflation report, the ECB is likely to hold on to its policy stance in its meeting scheduled this week, despite Mario Draghi’s earlier comments that the meeting will prove crucial. Meanwhile, the single currency has strengthened against the greenback this morning amid renewed risk appetite in markets following reports of moderating tensions in Eastern Europe. Further, the Euro received a boost after data showed that the number of unemployed people in Spain fell unexpectedly for February. Later today, producer prices data in the Euro zone will attract modest market attention.

Other Currencies – Highlights

The Japanese Yen has moved sharply lower from its recent peak against the majors this morning as demand for safe haven assets diminished amid reports that Russia has ordered to call back its military troops patrolling the Ukrainian border. The Japanese Yen had moved higher against most of its major peers over the past few days as concerns of a war breaking out in Ukraine led investors to seek shelter in safe haven assets. Additionally, upbeat domestic economic data released late last week further supported the Japanese Yen against the majors. With a relatively light domestic economic calendar during this week, investors in the Japanese Yen will keep a tab on news flows emanating from both sides of the Atlantic, especially the ECB and BoE monetary policy meetings and the US labour market report, for further direction to risk appetite.