Euro zone Sentix Investor Confidence Improves

With a relatively light global economic calendar to contend with this week, investors will heave a sigh of relief, especially since the past two weeks have been hectic in terms of macro releases across the globe. At home, a speech by MPC member, Charlie Beans is the only major event for the day, while in the US, FOMC policymaker, Charles Plosser’s comments will attract considerable market interest in the absence of decisive macro data. In Europe, while the Euro zone Sentix investor sentiment improved, the unexpected weakness shown by the industrial sector in France and Spain continues to highlight the currency bloc’s fragile economic recovery. Additionally, weak Chinese economic data released over the weekend has heightened concerns about an economic slowdown in the nation.

Pound Sterling – UK Markets

The Pound failed to build on its early session gains and moved lower against the US Dollar on Friday. While Sterling showed little reaction to the decline in domestic consumer inflation expectations, the better than expected US labour market report dragged the currency lower against the greenback. British inflation expectations over the next year fell to the lowest level in four years, offering support to the BoE’s policy stance to keep borrowing costs at record low levels for an extended period of time. Last month, the BoE had revised its forward guidance and signaled its intention to maintain low interest rates to aid the UK economic recovery. Meanwhile, Sterling is trading in a tight range against the US Dollar in today’s trading session. Data just released has shown that the UK employment confidence index remained steady for February. With a relatively light domestic and global economic calendar today, Sterling investors are looking forward to tomorrow’s UK industrial and manufacturing output reports and the NIESR GDP forecast for further direction to risk appetite.

US Dollar – US Markets

Friday’s better than expected US non-farm payrolls report eased market fears of a prolonged weather induced economic slowdown in the world’s largest economy and lifted the greenback against the majors. The domestic non-farm payrolls rose more than forecast for February, while last month’s numbers were also revised upwards, indicating that the labour market remains resilient in the face of harsh weather conditions. However, the US unemployment rate inched up slightly to 6.7% and trade deficit also rose more than expected for January, thereby limiting the greenback’s gains against its major peers. Meanwhile, William Dudley, the New York Fed President, indicated that the central bank might begin raising interest rates by mid-2015, citing improved US economic growth prospects. The greenback is searching for direction against the majors this morning, with any decline in today’s trading session looking limited following weak Chinese trade data released over the weekend. With little on the domestic macro front, comments from Fed policymaker, Charles Plosser, due later today and developments in Ukraine will keep markets interested in the session ahead.

Euro – European Markets

Euro investors cheered the upbeat German industrial production report released on Friday, temporarily propelling the single currency higher against the US Dollar. The better than expected German industrial output numbers added weight to the ECB’s upbeat assessment of the region’s economy and its President, Mario Draghi’s claims that the Euro zone economic recovery was on track. However, the Euro gave up most of its gains and retreated against the greenback later in the day following the release of upbeat US non-farm payrolls data. The common currency has shrugged off weak Chinese economic data released over the weekend and is trading in a tight range against the majors in today’s trading session. Meanwhile, macro data continues to offer little hints about the direction in which the Euro zone economic recovery is heading. While the Euro zone consumer sentiment improved for March and Italian industrial production rose for January, the weak French and Spanish industrial output reports painted a mixed picture of the region’s economy. Looking forward, a string of important Euro zone macroeconomic releases will drive trading sentiment in the Euro-US Dollar in the week ahead.

Other Currencies – Highlights

The Canadian Dollar weakened against the majors on Friday following the release of downbeat domestic labour market report which showed that the number of people employed in the nation fell unexpectedly for February, although the unemployment rate remained steady for the month. Additionally, the better than expected US non-farm payrolls report underpinned demand for the greenback, thereby adding to the Canadian Dollar’s woes against the US Dollar. However, the surprisingly upbeat domestic trade data kept the Canadian Dollar’s losses under check. The upbeat trade data, led by an unexpected pick-up in exports, is likely to strengthen the Bank of Canada’s resolve to maintain an accommodative monetary policy. With the Canadian Dollar still trading under pressure against the greenback this morning, investors will keep a tab on the domestic housing starts report for further direction to risk appetite. Moving ahead, in the absence of major domestic economic data this week, news flows emanating from both sides of the Atlantic will influence trading sentiment in the Canadian Dollar against the majors.