Crimean Referendum Increase Tensions

The tensions in Eastern Europe escalated after preliminary reports indicated that 96% of voters in Crimea, in a referendum held over the weekend, voted to split from Ukraine and join Russia. The US and the EU have deemed the referendum as illegal and threatened to impose sanctions on Russia, thereby making markets jittery about the future. In the US, today’s industrial production and tomorrow’s inflation reports will generate market interest ahead of the Fed’s policy meeting scheduled later this week. In the Euro zone, today’s final inflation report is unlikely to offer any surprises to investors. At home, the UK Chancellor, George Osborne’s Budget Speech this week will outline the future course of fiscal policy in 2014.

Pound Sterling – UK Markets

Sterling remained volatile against the US Dollar on Friday as weak domestic trade report was countered by disappointing US consumer sentiment numbers and persistent tensions in Ukraine. The UK trade deficit widened more than forecast for January, primarily due to a decline in goods exports which fell to the lowest level since June 2012, justifying the BoE Deputy Governor’s statement last week that the strong Pound is hindering the nation’s exports. However, construction output in Britain rose above expectations for January, benefitting from the booming housing sector in the nation. Meanwhile, the Pound is trading in a tight range against its peers in today’s trading session. A report released by Rightmove earlier today showed that house prices in the UK continued to rise for March, albeit at a slower pace. With no domestic economic data on tap today, investors will follow important Euro zone and US macro releases for further direction. Later this week, the domestic labour market report will attract market attention. Additionally, investors will eye the Budget Speech from the UK Chancellor, George Osborne and the BoE minutes of the last policy meeting for a glimpse into future policy moves.

US Dollar – US Markets

The unexpectedly downbeat domestic economic reports weakened the US Dollar against the Euro on Friday. The Reuters/Michigan consumer sentiment index report showed an unexpected deterioration in the US consumer confidence for March and price pressures also receded for February. The soft producer prices highlighted the tame inflationary pressures in the nation lately. However, escalating tensions in Ukraine limited the greenback’s losses against the Euro. Meanwhile, Richard Fisher, the Dallas Fed President, opined that the US economic recovery is “proceeding steadily.” The greenback is range bound against the single currency this morning. Markets will eye the domestic industrial production report today which is expected to show a rebound in the nation’s industrial output for February. Furthermore, investors will look forward to the latest updates from Ukraine, especially given the prospects of the Western economies imposing sanctions on Russia. However, the Fed’s monetary policy meeting scheduled later this week will generate maximum market interest and provide cues about the central bank’s policy stance under its new Chief, Janet Yellen.

Euro – European Markets

The common currency limited its downside against the greenback on Friday tracking disappointing US economic data. However, rising concerns in Eastern Europe over a possible invasion of Crimea by Russia capped the Euro’s gains against the US Dollar. On the domestic macro front, the revised German inflation report reaffirmed the easing trend in the nation’s consumer prices for February. Against this backdrop, today’s Euro zone inflation numbers will be closely followed by investors, even though expectations of a surprise are minimal. Meanwhile, Moody’s has raised its outlook for the EU to stable from negative on the back of improved finances of its member countries and receding risks from the Euro zone debt crisis. The upbeat assessment of the economy will surely boost the ECB’s resolve to maintain interest rates at current levels. The single currency is trading in a tight range against the US Dollar this morning. Apart from the domestic inflation report, events unfolding in Ukraine will be closely followed by investors in the session ahead. The string of Euro zone and German economic data will influence trading sentiment in the Euro-US Dollar pair this week.

Other Currencies – Highlights

The Kiwi Dollar has strengthened against its counterparts this morning despite the release of mixed domestic economic data earlier today as the Reserve Bank of New Zealand’s decision to raise benchmark interest rates last week continue to underpin demand for the currency. While consumer confidence in New Zealand climbed to a nine-year high for the first quarter of 2014, services PMI for February eased to the lowest level in six months. The drop in services PMI was largely due to a sharp decline in new orders. In the absence of major domestic economic data today, investors in the Kiwi Dollar will keep a tab on important Euro zone and US economic reports for further direction to appetite. Looking forward, the domestic fourth quarter GDP numbers this week along with news flows emanating from both sides of the Atlantic will keep investors in the New Zealand Dollar on their toes.