Sterling Inches Closer to the 1.70 Mark

Following the release of yesterday’s buoyant domestic services PMI report, the Pound moved closer towards the 1.70 level against the US Dollar. Although the Pound fell short of breaching this crucial mark, it continues to trade at multi-year highs against the greenback this morning. Meanwhile, with the OECD expressing concerns about rising house prices in the UK, it remains to be seen if the BoE takes any measures to address the issue in its policy meeting tomorrow. In the US, investors will closely track comments from the Fed Chief for insights into the central bank’s outlook on the domestic economy. However, amid fears of a civil war breaking out in Ukraine, currency markets are likely to remain cautious in the session ahead.

Pound Sterling – UK Markets

The Pound advanced and hovered near the 1.70 mark against the US Dollar yesterday after data indicated that the UK’s dominant services sector expanded for April at its fastest pace this year, indicating that the broader economy is gaining momentum. The recent upbeat macroeconomic data is likely to intensify the debate about whether the BoE would consider raising interest rates sooner than market expectations. Against this backdrop, tomorrow’s outcome of the BoE monetary policy meeting will be keenly awaited for further direction. Meanwhile, the OECD raised its forecast for Britain’s economic growth to 3.2% this year, but warned about an impending housing bubble in the wake of rising house prices in the nation. With no major decisive triggers at home, Sterling is range bound against its major counterparts in today’s trading session as investors remain on the edge due to escalating violence in Ukraine. Going ahead, investors will keep a close watch on today’s comments from the US Fed Chief, Janet Yellen, for her views on the future monetary policy stance.

US Dollar – US Markets

The US Dollar dropped against the Euro in yesterday’s trading session following better than expected Euro area services activity for April, thus boosting the overall outlook for the region. On the domestic macro front, data showed that the US trade deficit narrowed for March as exports rebounded, thereby suggesting that the economy started gaining momentum at the end of the first quarter. Separately, the OCED forecast the US economy to grow 2.6% in 2014, lower than its previous estimate, primarily due to slower growth during the first quarter. Meanwhile, the Fed Governor, Jeremy Stein, opined that market expectations of continued reduction in bond purchases makes it easier for the central bank to carry out tapering through the rest of the year. The greenback is looking for direction against its major peers this morning. Market attention today remains glued to the US Fed Cheif, Janet Yellen’s testimony before the Joint Economic Committee of Congress for further hints on the outlook of the economy. However, investors will be more focused on her views about the continuation of the QE tapering cycle and the probable timing of an ultimate interest rate hike.

Euro – European Markets

Services activity in most of the European nations expanded more than expected for April, leading the Euro to move higher against the greenback yesterday. Furthermore, the Euro zone monthly retail sales climbed for March, thus pointing that recovery in the currency bloc is slowly gaining traction. However, the recent largely downbeat German macroeconomic data suggests that the region’s largest economy remains aloof from contributing to the overall economic activity in the Euro zone. Data released earlier today indicated that factory orders in Germany fell unexpectedly for March, further confirming the notion. Meanwhile, the single currency is trading in a tight range against both the Euro and the US Dollar this morning as risk appetite among investors remained subdued due to heightening geopolitical tensions in Ukraine which has raised the possibility of a civil war. With no major macroeconomic data across Europe today, investors will keep a tab on Janet Yellen’s testimony for further direction. Additionally, market participants will remain on the sidelines ahead of the ECB monetary policy outcome tomorrow, especially after the OECD urged the central bank to act soon to combat low inflation prevailing in the region.

Other Currencies – Highlights

The New Zealand Dollar drifted lower against the US Dollar in today’s trading session after data indicated that the domestic unemployment rate remained unexpectedly steady for the first quarter of 2014, although participation rate rose to an all time high. Furthermore, the Reserve Bank of New Zealand Governor, Graeme Wheeler, indicated that the continued strengthening of the domestic currency in the face of weakening prices for the nation’s exports would raise the probability of an intervention, triggering further losses in the Kiwi Dollar. Separately, continued fears of an economic slowdown in China following the release of weak services activity report further dampened investors’ sentiment towards the New Zealand Dollar. With no more domestic economic data scheduled for release today, Janet Yellen’s speech will attract maximum market attention. Additionally, in the absence of major domestic macro data for the rest of the week, a slew of global economic reports, especially crucial Chinese macro data, will keep investors in the Kiwi Dollar interested.