UK Manufacturing Production Tops Forecast

The just out UK industrial output print has shown that industrial activity in the nation slowed in March, although it topped market expectations. Meanwhile, the BoE refrained from issuing fresh forward guidance in its monetary policy meeting yesterday, despite the overall positive domestic economic environment and rising house prices. The Euro took a hit against the majors yesterday after Mario Draghi indicated that he is comfortable about taking action next month to tackle deflation. As a result, the ECB now looks increasingly closer to launch its own QE style programme. Meanwhile, geopolitical tensions in Ukraine are set to escalate after separatists in Eastern Ukraine defied a call from the Russian President to defer a referendum seeking autonomy.

Pound Sterling – UK Markets

The just released manufacturing and industrial production numbers for March have surprised market participants on the upside, although it has shown an easing trend. A possible downward revision to the first quarter GDP numbers due to this easing trend cannot be ruled out. Also, data showed that trade deficit narrowed for March. However, the Pound has shown little reaction and is hovering near the 1.69 mark against the US Dollar this morning. The NIESR GDP estimate report due later in the session will attract market attention and is likely to show that economic growth remains on track. In the upcoming week, domestic labour market data will be keenly eyed for further direction. Yesterday, Sterling advanced against the Euro as comments from the ECB Chief raised expectations of stimulus measures at the June policy meeting. Earlier, the BoE kept its key interest rate and asset purchases programme unchanged at current levels. However, the central bank did not provide any forward guidance despite the unemployment rate falling below its previous benchmark target. The central bank is widely expected to release the latest economic projections in its quarterly inflation report scheduled next week.

US Dollar – US Markets

The US Dollar moved sharply higher against the single currency yesterday after the ECB President indicated that the central bank might take necessary steps in its June meeting to tackle continued low inflation in the Euro area region. Furthermore, the number of people filing for initial jobless benefits in the US fell more than expected last week, thereby strengthening views about improving labour market conditions in the world’s largest economy. However, the Fed Chief, Janet Yellen, in her testimony reiterated that the US economy still requires support given the “considerable slack” in the domestic labour market and the central bank will closely watch weak domestic housing market and geopolitical tensions that risks the nation’s economic recovery. The greenback is trading in a tight range against most of its major counterparts in today’s trading session. With no major domestic triggers today, Reuters/Michigan consumer sentiment data along with housing and regional manufacturing sector reports will keep market participants interested in the forthcoming week. In the wake of concerns raised by most of the Fed policymakers regarding low inflation in the nation, next week’s consumer price inflation report for April will be keenly eyed.

Euro – European Markets

On expected lines, the ECB left its benchmark interest rate unchanged at 0.25% and adopted no new stimulus measures at its policy meeting yesterday. However, the Euro slipped against the US Dollar and moved below the 1.39 mark in yesterday’s trading session after the ECB Chief, Mario Draghi, warned that the strong Euro is a serious concern and if required, the central bank might unveil fresh monetary policy measures in its June 2014 meeting to combat persistently low inflation prevalent in the region. He also stressed that geopolitical tensions in Ukraine might weigh on the Euro area economy, if conditions worsen further. The single currency is range bound against most of its major counterparts this morning. Earlier today, data indicated that German trade surplus narrowed unexpectedly for March. The recent set of weak data in Germany has raised concerns over the pace of recovery in the nation. With no major domestic data today, next week’s GDP numbers and the final inflation reading from most of the European economies will attract market attention. Additionally, German and Euro zone ZEW sentiment indices are likely to provide hints about the health of the economy during the current quarter.

Other Currencies – Highlights

The Canadian Dollar is range bound against the greenback in today’s trading session. The employment report in Canada for April due later today will be closely watched, especially after last month’s significant increase in the number of job additions. However, the unemployment rate is likely to remain unchanged at 6.9% for April. Yesterday, data indicated that new home construction in Canada rose more than expected for April, raising expectations that the domestic housing market continues to recover from weather related weakness seen earlier this year, thereby leading the Canadian Dollar to move higher against the US Dollar. Earlier this week, the OCED raised its forecast and expects the economy to grow 2.5% in 2014 while it urged the Bank of Canada to maintain its current policy stance for the time being. In the forthcoming week, with no major domestic macroeconomic data, a slew of reports in the US, especially consumer price inflation for April, will keep the Canadian Dollar investors on their toes.