Strong UK Retail Sales Data Lifts Sterling

The just out British retail sales report has shown that the domestic sales growth for February surpassed market expectations, with consumers seemingly shrugging off severe weather conditions seen of late. With today’s economic data providing a sigh of relief to Sterling investors, it remains to be seen if the UK economy can sustain the pace of recovery during the first quarter of 2014. In the US, a slew of economic data will be closely monitored by market participants for hints into the central bank’s policy stance in the future. Meanwhile, against the backdrop of recent dovish comments from the ECB officials, tomorrow’s German consumer price inflation report will be closely followed by investors to gauge prospects of deflation in Euro zone.

Pound Sterling – UK Markets

The Pound has moved higher against the majors this morning after data just released showed that annual retail sales in the UK grew at a faster than expected pace for February. The upbeat retail sales report has provided further evidence of the economy gaining traction and has supported yesterday’s hawkish comments from Martin Weale, a BoE policymaker. Moreover, monthly retail sales rebounded from the sharp decline seen in January. With no more domestic economic data scheduled for release today, investors in the Pound-US Dollar pair will follow important macro releases from the US for further direction. Additionally, tomorrow’s domestic consumer confidence and the final fourth quarter GDP numbers will also feature on investors’ radar. Sterling strengthened against the majors yesterday after a BoE policymaker, Martin Weale, once again fuelled speculation of an interest rate hike by stating that borrowing costs should rise as the economy recovers. However, the positive US economic data released later in the day capped further gains in the Pound against the greenback.

US Dollar – US Markets

The US Dollar moved higher against single currency yesterday even as the Fed officials continued to offer mixed clues about the timing of the central bank’s interest rate hike decision. The US president, Barack Obama, warned Russia that it would face more sanctions if the Crimea crisis intensifies and its isolation will deepen. However, talks of negative deposit rates in the Euro zone together with positive domestic economic data kept the greenback supported against the common currency. The US durable goods orders rebounded more than expected for February, driven by an increase in orders for civilian and defense aircraft and motor vehicles. Meanwhile, the greenback is trading on a firmer footing against the Euro in today’s trading session. Later today, investors will keep a tab on a raft of domestic economic releases, including the revised fourth quarter GDP and the weekly initial jobless claims data, for further direction to risk appetite. Additionally, the pending homes sales print will be closely watched to gauge the health of the housing market, especially in the wake of the recent weakness witnessed in the sector.

Euro – European Markets

The common currency weakened against its major counterparts yesterday, weighed down by recent comments from the ECB and the Bundesbank Presidents which indicated the use of further monetary policy measures including negative deposit rates in the near term to support the region’s economy. Additionally, fears of deflation setting into the region has added to the central bank’s apprehensions. Against this backdrop, Euro investors will keep a close eye on the German inflation report which is expected to show a further dip in the nation’s consumer prices and might trigger talks of negative deposit rates in the currency bloc. The German GfK consumer confidence report which came in line with market forecasts did little to lift investors’ sentiment towards the common currency yesterday. The single currency has continued to weaken against the US Dollar in today’s trading session amid rising geopolitical tensions in Ukraine after the US warned of additional sanctions against Russia. With little of note on the domestic macro front today, crucial US economic releases will drive trading sentiment in the Euro-US Dollar pair.

Other Currencies – Highlights

The Kiwi Dollar strengthened against the majors and rose to an eleven-month high against the greenback this morning after data released earlier today showed that New Zealand’s trade surplus for February topped market expectations and widened to its highest level since April 2011. Exports to China, New Zealand’s biggest trading partner, surged 49% compared to the corresponding period a year ago, despite signs of economic weakness emerging from the world’s second largest economy lately. The upbeat trade report has justified the Reserve Bank of New Zealand’s decision to raise interest rates earlier this month on the back of improving domestic economy. In the absence of domestic macro data for the rest of the week, investors in the Kiwi Dollar will keep a tab on news flows emanating from both sides of Atlantic for further direction. Moving forward, important domestic and global economic data scheduled next week will prove crucial for the New Zealand Dollar against the majors.