Mark Carney Defends BoE Forward Guidance

In the midst of another day with little economic activity around the globe, fears of a Chinese economic slowdown and the Russian takeover of Ukraine’s Crimea region continued to hog limelight yesterday. At home, Mark Carney signalled that interest rates might remain at low levels for an extended period of time. Across the Atlantic, the Treasury Secretary, Jacob Lew’s speech will gain maximum market attention today ahead of tomorrow’s US monthly budget statement. In the Euro zone, Spain reported better than expected inflation numbers earlier today, adding to belief that the ECB will pursue a “wait and watch” approach in the near term. The Euro zone industrial output report is likely to influence market sentiment in today’s trading session.

Pound Sterling – UK Markets

In a largely volatile trading session yesterday, the Pound regained most of its early session losses against the US Dollar but was range bound against the common currency. Sterling’s losses earlier in the day were triggered after the annual domestic industrial production print narrowly missed market expectations while monthly output eased more than forecast for January. The harsh weather conditions contributed to the weak industrial output numbers for the month. However, a report by the NIESR indicating a further expansion in the British economic activity for the three months ended February allowed the Pound to recoup some of its losses against the greenback. Meanwhile, the BoE Governor, Mark Carney, while defending the central bank’s forward guidance, continued to hold a positive view on the British economy as he opined that despite strong domestic economic recovery, the UK economy was a long way from overheating. The Pound is trading marginally lower against the greenback in today’s trading session. In the absence of domestic economic reports today, investors will follow the Euro zone industrial production data and events unfolding in Ukraine for further direction to risk appetite.

US Dollar – US Markets

With little on the domestic macro front to trigger risk appetite, the US Dollar searched for direction against the majors, in the midst of a lacklustre trading session yesterday. The disappointing NFIB small business optimism report briefly weakened the greenback, but lingering concerns about a potential slowdown in China and renewed tensions in Eastern Europe supported the currency against the Euro yesterday. Despite last week’s labour market report soothing worries about the state of affairs in the US economy, the latest NFIB report suggested that the lack of clarity over reforms in Washington and pile up of inventory in the system pose hurdles for the economy in the near term. The US Dollar has continued to trade in a tight against its peers in today’s trading session. In the wake of the light economic calendar today, a speech by the US Treasury Secretary, Jacob Lew, will generate market interest. Additionally, trading sentiment in markets is expected to be governed by news flows emanating from Ukraine. Moving forward, market participants will keep a tab on tomorrow’s domestic retail sales, jobless claims and the budget statement for further direction.

Euro – European Markets

The Euro shrugged off positive German trade and current account balance report and declined against the US Dollar yesterday, as ECB policymakers continued to indicate that the central bank may still intervene to stimulate the Euro zone economy. The Euro came under pressure after ECB’s Vice President, Vitor Constancio, stated that markets might have overlooked some parts of ECB’s message announced last week wherein the central bank announced its forward guidance taking into consideration the existing slack in the region’s economy. He further added that the ECB remains prepared to use accommodative measures. Additionally, the Bank of Spain Governor, Luis Maria Linde, aired similar views in Madrid earlier today. However, German economy continued to show signs of strength, as yesterday’s data showed a considerable pick up in the nation’s trade surplus. The single currency is trading lower against the majors in today’s trading session. Going forward today, Euro zone industrial production data is likely to show a rebound for January, mainly contributed by an improvement in most of its peripheral industrial activity. Also, speeches from few ECB officials will be closely eyed today.

Other Currencies – Highlights

The Aussie Dollar’s recent slide against the majors has persisted in today’s trading session after data released this morning showed that consumers in the nation continue to remain pessimistic about Australia’s economic prospects, largely on the back of deteriorating domestic labour market conditions, with the unemployment rate rising to the highest level in over a decade for January. Meanwhile, the number of home loan approvals remained unchanged for January, although the numbers were better than market forecasts of a marginal decline. The Australian Dollar has been trading under pressure against its peers over the past few days tracking weak macroeconomic data released by its major trading partner, China, over the weekend. With no major domestic or global economic data on tap today, market participants will keep a tab on tomorrow’s domestic labour market and consumer price inflation expectations reports for further direction. Additionally, crucial Chinese and US economic data will keep investors in the Australian Dollar on their toes tomorrow.