Draghi, US to Drive Market Sentiment Today

In the Euro zone, the ECB’s monthly report offered a slightly positive view of the domestic economy, although medium term inflation expectations remain subdued. However, Mario Draghi’s speech today will be closely followed to decipher whether the central bank is contemplating the use of accommodative measures to fend off deflationary pressures, especially in the aftermath of the recent spate of dovish comments from other ECB policymakers. In stark contrast, rising inflationary pressures in New Zealand led the RBNZ to raise its benchmark interest rates yesterday. In the UK, tomorrow’s trade balance data will be followed by investors to ascertain if the strong Pound has negatively affected exports. In the US, today’s retail sales and jobless claims reports will gain considerable market attention.

Pound Sterling – UK Markets

The Pound traded in a tight range against the greenback yesterday due to lack of domestic economic data. Meanwhile, the BoE Deputy Governor, Charlie Bean, earlier this week indicated that the central bank is unlikely to raise interest rates in the near future. Despite the UK economy improving considerably from an anaemic growth period witnessed during the same period last year, influential policymakers in the central bank including the BoE Governor, Mark Carney have expressed their inclination to pursue accommodative measures in the near term. With no major alteration envisaged in Britain’s monetary policy, the focus now shifts to gauge UK’s fiscal policy going forward, wherein British Chancellor, George Osborne’s Budget Speech next week is likely to offer a deeper insight about the road ahead. Meanwhile, Sterling has strengthened against the US Dollar this morning tracking comments made by a FOMC official calling for the central bank to persist with its loose monetary policy stance. With little on the domestic macro front, investors in the Pound-US Dollar pair will keep a tab on important US economic data today. Additionally, tomorrow’s UK trade data will also keep Sterling investors interested.

US Dollar – US Markets

The US Dollar has weakened against its peers this morning after Stanley Fischer, the incoming Fed Vice-Chairman, stated earlier today that the US economy needs an expansionary monetary policy, especially given the recent weakness in the US labour market. However, in stark contrast, the US Treasury Secretary, Jacob Lew, opined that the US economic and labour market recovery is on track. Against this backdrop, today’s initial jobless claims numbers will be closely watched by market participants for further insights about the health domestic labour market and stance that the Fed might adopt in the coming period. Additionally, the US retail sales report, which is expected to show a rebound in domestic sales for February, will also attract market attention today. In the absence of domestic economic data, the greenback moved lower against the single currency yesterday tracking modest improvement in the annual industrial activity in the Euro zone compared to the crisis period last year. However, continued tensions in Eastern Europe limited the US Dollar’s losses against the common currency yesterday.

Euro – European Markets

The Euro breached the 1.39 mark and climbed to the highest level in over two and half years against the US Dollar this morning. The rise in the common currency was aided by dovish comments made by a FOMC policymaker advocating continuation of the Fed’s accommodative policy stance. However, disappointing Chinese economic data released earlier today capped the Euro’s gains against the greenback. Meanwhile, the ECB monthly report has indicated that the ECB continues to remain cautiously positive about the currency bloc’s economic prospects. Later today, investors in the Euro-US Dollar pair will keep a tab on a speech by the ECB President, Mario Draghi, for his views about the same. The common currency moved higher against the US Dollar yesterday following the release of the Euro zone industrial production report which showed a slightly better than expected rise in the region’s annual industrial output for January, adding weight to the ECB’s recent claims that the currency bloc’s economic recovery is gaining traction. Additionally, ECB policymaker, Benoit Coeure’s comments downplaying deflation talks in the Euro zone further supported the single currency against its peers.

Other Currencies – Highlights

The New Zealand Dollar has strengthened against its peers rising to a ten-month high against the greenback in today’s trading session after the Reserve Bank of New Zealand expectedly raised its benchmark interest rate to 2.75% from 2.50%. Further, Graeme Wheeler, the RBNZ Governor, opined that in order to keep a check on inflation, the central bank might raise the official cash rate by about 2 percentage points over the next two years. However, the central bank maintained that the pace of the interest rate hike will depend on the nation’s economic data during the period. The weaker than expected Chinese economic data released earlier today also failed to arrest the Kiwi Dollar’s gains against the majors this morning. The domestic manufacturing PMI report scheduled to be released today will keep investors in the Kiwi Dollar interested. Additionally, trading sentiment in the New Zealand Dollar against its peers will also be swayed by news flows emanating from both sides of the Atlantic today.