Currency markets continue to remain influenced by the hawkish tone adopted by the Fed Chairperson, Janet Yellen, last week and persistent tensions in Eastern Europe. Against this backdrop, speeches by influential Fed policymakers and crucial US economic reports together with further updates from Ukraine will drive market sentiment this week. In the Euro zone, today’s disappointing Euro zone and German PMI reports have once again highlighted the fragile nature of the currency bloc’s economic recovery.
At home, the UK Chancellor, George Osborne’s borrowing target is likely to face severe challenges in the wake of recent giveaways announced. Meanwhile, a barrage of important domestic economic reports this week will gain market attention.
Pound Sterling – UK Markets
The Pound remained volatile against both the US Dollar and the Euro throughout Friday’s trading session as the US Fed Chief, Janet Yellen’s hawkish comments earlier in the week continued to weigh on the currency as it dropped to the lowest level in over a month against the greenback. On the macro front, the UK public finances for February improved compared to a year ago, but the overall numbers indicated that the UK Chancellor, George Osborne’s borrowing target for 2014 might be difficult to meet. Additionally, several freebies offered by the government lately, like the extension of the “Help to Buy” scheme is likely to add to the burden. Meanwhile, the MPC member, David Miles, opined that BoE policymakers are likely to differ over the timing of the first interest rate hike.
The Pound is trading in a tight range against the greenback this morning. In the absence of domestic economic releases today, market participants will keep a tab on news flows emanating from across the globe for further direction. A string of domestic macro data, beginning with tomorrow’s consumer price inflation report, will keep Sterling investors on the edge during the week.
US Dollar – US Markets
The US Dollar has held on close to its recent highs against the Euro this morning on the back of weak set of PMI data from the Euro zone and China. The latest PMI figures have further validated belief that the simmering geopolitical tensions in Eastern Europe appear to have hurt the overall economic sentiment in the Euro zone. Meanwhile, for the week ahead, a barrage of domestic macroeconomic data coupled with speeches from some of the Fed officials will be keenly watched for further direction.
The US Dollar remained range bound against the Euro on Friday. On the monetary policy front, most of the Fed policymakers echoed the Fed Chief, Janet Yellen’s views that the central bank is likely to scale down its bond purchases later this year and hike its benchmark interest rates within the subsequent six months. However, Narayana Kocherlakota, the Minneapolis Fed President, indicated that he dissented from last week’s Fed decision and voiced his reluctance over the central bank’s new forward guidance, stating that it might weaken the US economic recovery.
Euro – European Markets
The Euro is trading in a tight range against most of its major counterparts this morning, after data released earlier today indicated that the German manufacturing and services PMI dropped more than anticipated, while the Euro zone service sector activity slowed for March, casting doubts over the pace of economic recovery in the region. However, French manufacturing activity unexpectedly expanded to a 33-month high for March. With most of the data out for today, the US manufacturing PMI report will influence trading sentiment in the Euro-US Dollar pair later during the session. Additionally, investors will keep a tab on events unfolding in Eastern Europe for further direction to risk appetite.
In a largely volatile trading session on Friday, better than expected Euro zone consumer confidence report limited the single currency’s losses against the greenback. The currency bloc’s consumer sentiment strengthened significantly for March to reach its highest level since November 2007, adding to signs that the Euro bloc’s economic recovery is gaining traction. Additionally, data indicated that Euro zone’s current account balance unexpectedly widened for January.
Other Currencies – Highlights
The Canadian Dollar has reversed most of its Friday’s gains and is trading lower against the majors this morning as the US Fed rate hike concerns continue to weigh on the currency. The Canadian Dollar had strengthened against its counterparts on Friday following the release of better than expected domestic consumer price inflation report and buoyant retail sales numbers. Although consumer prices in the nation slowed down for February, they beat market forecast and remained within the Bank of Canada’s comfort zone. Meanwhile, Canada’s January retail sales rose at the fastest pace in eight months, on the back of increased automobiles and general merchandise sales. The positive economic data however is unlikely to effect a change in the Bank of Canada’s policy stance in the near future.
With little of note on the domestic macro front this week, news flows emanating from both sides of the Atlantic will prove crucial for the Canadian Dollar against the majors.