UK Jobs Market Recovery on Track

In the wake of the ongoing broad based economic recovery at home, further enhanced by the just released positive labour market data, today’s annual Budget Speech by the UK Chancellor, George Osborne is unlikely to offer many surprises. However, it remains to be seen if the Chancellor takes some popular decisions to strengthen his case ahead of elections scheduled next year. Across the Atlantic, today’s Fed policy meeting and the subsequent press conference by its Chairperson, Janet Yellen, will be keenly followed to ascertain if the central bank persists with QE3 tapering, given the mixed economic data lately and for hints about the new Fed Chief’s future policy stance. Additionally, markets will keep a tab on the latest updates emerging from Eastern Europe.

Pound Sterling – UK Markets

The just out upbeat domestic labour market report has lifted the Pound against the majors this morning. While the unemployment rate remained steady for January, the number of unemployed people in the UK fell more than expected for February. The latest numbers further support the notion that recovery in the labour market continues to remain strong. Meanwhile, minutes of the latest BoE policy meeting have offered little in terms of novelty as MPC members continued to present a unified stand in maintaining the central bank’s current policy stance. However, market focus has now shifted to the Budget Speech by George Osborne today to gauge if the UK Chancellor would dole out further freebies, especially following the extension of the “Help to Buy” scheme earlier this week. Additionally, investors will keep a tab on the Fed monetary policy meeting today for further direction to risk appetite. Sterling traded under pressure against the US Dollar yesterday as continued tensions in Ukraine underpinned demand for the greenback. Meanwhile, the BoE Governor, Mark Carney opined that there is no need for a sharp hike in borrowing costs to control overheating markets.

US Dollar – US Markets

The US Dollar is trading stronger, albeit in a tight range, against the Euro this morning as investors await the outcome of the Fed’s two-day monetary policy meeting concluding today. Given the recent spate of largely mixed domestic economic data, investors will keenly watch if the central bank continues tapering its asset purchases. Additionally, mixed comments from influential Fed policymakers of late have confounded investors about the status of QE3 tapering. Further, Janet Yellen’s post-meeting press conference will gain market interest to ascertain if the Fed replaces the 6.5% jobless rate threshold with a new range of economic indicators as its forward guidance for the next interest rate hike. Yesterday’s mixed domestic macro data failed to support the US Dollar against its major counterparts. The consumer price inflation eased more than expected for February and continues to remain way below the Fed’s 2% target rate, suggesting that interest rates will remain near record low levels in the near term. Additionally, mixed housing market data weighed on the greenback against its peers yesterday. The Russian President’s assurance of no further split of Ukraine also improved risk appetite amongst investors.

Euro – European Markets

The single currency was volatile against the US Dollar yesterday tracking disappointing domestic and mixed US economic data. The disappointing Euro zone and German ZEW economic sentiment data has darkened clouds over the economic outlook of the region. The German economic confidence index dropped to the lowest level since August 2013, weighed down by the political insecurity in Ukraine which threatens to hurt economic recovery in Europe’s largest economy. However, the Euro reversed most of its losses against the greenback after Vladimir Putin, the Russian President, assured the world that he has no intention to further split Ukraine. Additionally, the mixed US economic data further supported the common currency’s demand yesterday. Meanwhile, the German Constitutional Court confirmed the legality of the European Stability Mechanism, reinforcing a preliminary ruling made during the debt crisis in 2012. The Euro is trading on a weaker footing against the majors in today’s trading session. In the absence of decisive economic triggers across the Euro zone, the Euro-US Dollar pair is likely to take direction from the Fed monetary policy decision due later today.

Other Currencies – Highlights

The Japanese Yen is trading on a weaker footing against the majors this morning after data released earlier today showed that the nation’s trade deficit narrowed less than forecast for February. Despite missing market expectations, the February trade deficit was at its lowest level in nine months as imports growth eased sharply for the month ahead of next month’s planned sales tax hike. Meanwhile, the Bank of Japan Governor, Haruhiko Kuroda, reiterated that the central bank is on the path to achieve its 2% price stability target and will continue to monitor risks and alter policy appropriately to attain the same. With little of note on the domestic macro front today, news flows emanating from both sides of the Atlantic, especially the Fed monetary policy meeting and developments in Eastern Europe, will prove crucial for the Japanese Yen against its peers in the session ahead. Further, another speech by the BoJ Governor tomorrow will attract market interest.