Central Bankers Drive Market Sentiment

Acknowledging the steady domestic economic recovery underway since last year, a BoE policymaker, Martin Weale, opined that the UK interest rates would not stay at their present low levels forever. Weale’s comments are likely to reignite talks of interest rate hike despite data released yesterday hinting at easing inflationary pressures in the nation. Across the Atlantic, Fed officials continue to cloud investors’ expectations about a possible hike in interest rates by offering differing views on the matter. Against this backdrop, today’s durable goods orders data will offer further insights. In the Euro zone, influential ECB officials continue to advocate using further policy measures to counter consistently low inflation.

Pound Sterling – UK Markets

The Pound moved higher against its peers yesterday even though data released earlier in the day showed that the annual British consumer price inflation eased for February to its lowest level in more than four years on the back of the biggest drop in fuel prices since September 2009. Although the subdued inflation data was in line with market forecasts, the further decline in consumer prices away from the BoE’s 2% target has poured cold water on market hopes of a hike in interest rates in the near term. Moreover, mortgage approvals also fell marginally for February, suggesting some moderation in the domestic housing market. However, Sterling strengthened against the majors yesterday tracking comments from the Fed and ECB officials. Meanwhile, the Pound has moved higher against the majors in today’s trading session after Martin Weale, a BoE policymaker, indicated that interest rates would not stay at 0.5% indefinitely as the economy looks in a better shape. With no major domestic economic data today, Sterling investors will keep a close tab on macro releases scheduled across the Atlantic for further direction.

US Dollar – US Markets

Conflicting comments from Fed policymakers overshadowed the largely positive domestic economic data yesterday, as the greenback reversed most of its early session gains against the common currency. Consumer sentiment in the world’s largest economy for March climbed to the highest level since January 2008, offering further signs that the US economy is regaining strength following a lacklustre start to 2014. Additionally, new home sales in the nation fell less than forecast for February, indicating that the housing market may be slowly recovering from the recent weather induced slowdown. However, contradictory views offered by Fed policymakers, Dennis Lockhart and Charles Plosser, with regards to the interest rate hike dampened investors’ sentiment towards the greenback. The US Dollar is trading on a firmer footing against the single currency this morning, largely overlooking comments made by the St. Louis Fed President, James Bullard, earlier today that the US unemployment rate is likely to fall below 6% by the end of 2014. Later today investors will closely follow the February durable goods orders report which is expected to a rise for the first time since November 2013.

Euro – European Markets

The common currency has held on to its yesterday’s late session rally against the US Dollar and is trading in a tight range against the currency this morning. The German GfK consumer confidence numbers released today were in line with market expectations and induced little movement in the Euro-US Dollar pair. The Italian consumer sentiment report scheduled for release later today will also gain market interest, especially following today’s positive domestic retail sales print. Further, important US economic data will also keep Euro investors interested in the session ahead. Despite the dovish tone adopted by the ECB President, Mario Draghi and the Bundesbank President, Jens Weidmann, together with the dismal German macro data, the Euro pared most of its losses against the greenback yesterday. Although both continued to rebuff talks of deflation, Draghi indicated that the central bank might take further policy measures, if risks to price stability emerge. Weidmann hinted at the use of negative deposit rates to ward off the threat of the rising Euro. Earlier in yesterday’s trading session, dismal German Ifo sentiment indices had led to the Euro’s downfall against the greenback.

Other Currencies – Highlights

The Australian Dollar has built on its recent gains and strengthened against the majors in today’s trading session after the Reserve Bank of Australia Governor, Glenn Stevens, stated that the nation’s economy is rebalancing and might strengthen later this year, citing encouraging signs of the economy diversifying from mining towards non-resources industries in Australia. Stevens also reiterated that interest rates are likely to remain stable in the near future, with the possibility of a hike thereafter if the economy continues to improve. The Aussie Dollar has moved steadily higher against its peers over the past few trading sessions, shrugging off concerns of a slowdown in China. The recent strength in the Aussie Dollar was largely backed by indications that the domestic economic recovery is gaining steam. With little on the domestic macro front today, investors in the Australian Dollar will keep a tab on news flows emanating from both sides of the Atlantic for further direction to risk appetite.