UK Industrial Production Rises

The just out domestic industrial output report has shown that the UK economic recovery is showing steady improvement, with manufacturing, services and housing sectors contributing to the overall strength. However, with an MPC policymaker highlighting risks associated with a strong pound, it remains to be seen if the BoE takes any steps to address these concerns. In the US, Fed policymakers continued to advocate scaling down asset purchases and also hinted at a possible shift in the central bank’s forward guidance in the near future. With little on the global macro calendar today, events unfolding in Ukraine could influence market sentiment.

Pound Sterling – UK Markets

The just released British industrial production data had little impact on the Pound as it continues to hover near yesterday’s lows against the majors this morning. However, the annual rise in industrial and manufacturing output highlights continued improvement in the UK industrial sector, strengthening perception that the economy remains on a stronger footing. However, today’s BRC retail sales data has surprised market participants on the downside. In today’s session, risk appetite towards the Pound will be governed by the NIESR GDP forecast report as well as news flows emanating from Ukraine. “Risk-off” sentiment prevalent in markets yesterday following weak Chinese economic data over the weekend, which dragged the Pound lower against the majors. Additionally, comments from the BoE Deputy Governor, Charlie Bean, further pressured Sterling against its counterparts yesterday. Bean expressed concerns over the current strength of the Pound, stating that any further rise in the currency might hinder the nation’s exports and derail efforts in attaining sustained growth in the near future. Against this backdrop, investors will keep a tab on tomorrow’s domestic trade data for further direction.

US Dollar – US Markets

With little of note on the global macro front yesterday, currency markets remained largely influenced by the Chinese economic data released over the weekend. With prospects of an economic slowdown gripping the world’s second largest economy looming large, the US Dollar moved higher against the majors as risk appetite among investors faded. Additionally, hawkish comments from influential FOMC policymakers, Charles Plosser and Charles Evans, further propped up gains in the greenback against its peers. Both Plosser and Evans opined that the central bank is likely to maintain the current pace of QE3 tapering in the near term. Additionally, Evans indicated that the Fed is looking to alter its forward guidance in a bid to hike short-term interest rates. Meanwhile, the US Dollar is trading in a tight range against the common currency in today’s trading session. In the absence of major economic data today, the NFIB small business optimism survey report will attract market attention in the session ahead. Additionally, amid renewed tensions in Ukraine, news flows emanating from Eastern Europe will generate market interest.

Euro – European Markets

On a day when “risk-off” sentiment was largely prevalent in markets following the release of weak economic data from the world’s second largest economy, the Euro’s downside was limited against the US Dollar yesterday as expectations of the ECB resorting to further easing receded. However, Christian Noyer, the ECB Governing Council member, while stating that the central bank’s accommodative monetary policy seems to be working, reiterated that the ECB will act if the currency bloc’s economic prospects deteriorated in future. Meanwhile, the Euro zone sentiment indices continued to paint a positive picture of the region’s economy. The single currency is trading lower, albeit in a tight range, against the US Dollar in today’s trading session. The German trade data released earlier today showed that the nation’s seasonally adjusted trade surplus narrowed for January, driven by a sharp increase in imports. With little in terms of macro releases to influence risk appetite today, Euro investors will keep a tab on renewed concerns in Eastern Europe for further direction.

Other Currencies – Highlights

The Japanese Yen is trading range bound against the majors in today’s trading session as the Bank of Japan’s expected decision to maintain the status quo with regards to its monetary policy invoked little response from market participants. Furthermore, the BoJ retained its economic and inflation outlook for the nation, reinforcing hopes that the Japanese economy is recovering at a moderate pace and that the bank is on the path to attain its 2% price target. The Japanese Yen had weakened sharply against its peers yesterday following a downward revision to the nation’s fourth quarter GDP numbers and a significant rise in its current account deficit for January. However, concerns surrounding the Chinese economy limited the currency’s losses against its counterparts. With little to alter market sentiment today, investors in the Japanese Yen will closely follow tomorrow’s domestic consumer confidence report and the BoJ’s monthly economic report for further direction. Meanwhile, any further escalation of the Ukrainian crisis is likely to underpin safe haven demand of the Japanese Yen in the near term.