Markets Steady Ahead of a Crucial Week

With the NIESR report released on Friday confirming the ongoing economic recovery in the UK and indicating that the economy is close to attaining its pre-crisis growth level, market attention has now shifted to this week’s BoE quarterly inflation report to gauge the central bank’s outlook about the same. Additionally, the domestic labour market data will generate interest this week, especially considering last month’s stellar performance. In the US and Euro zone, crucial macroeconomic data scheduled this week will determine investors’ risk appetite. With little on the global macro front today, developments in Eastern Europe will be closely eyed by investors, especially amid reports that pro-Russian separatists have claimed victory in the independence referendum held in some eastern Ukrainian regions.

Pound Sterling – UK Markets

In Friday’s trading session, continued concerns in Ukraine along with a slowdown in UK’s industrial and manufacturing production for March dragged the Pound lower against the greenback. However, data revealed that factory output in the UK rose at the fastest quarterly pace in almost 15 years during the first quarter of 2014, strengthening views that the British economic recovery is gaining traction. Moreover, a report from the NIESR indicated that the UK economy grew at the fastest pace since June 2010 for the three months period ended April. This morning, Sterling is trading firmer against most of the majors. Going forward this week, most of market attention will be focused on the UK labour market data ahead of the BoE’s quarterly inflation report. The labour market and house prices data will be the focal point, considering that the unemployment rate fell below the BoE’s earlier target and the housing market continues to heighten concerns of a looming housing bubble in the nation. Despite the largely upbeat domestic economic data lately, the BoE Governor, Mark Carney, is likely to play down prospects of an early hike in interest rates, given that inflation in the nation continues to linger below its benchmark target.

US Dollar – US Markets

The greenback continued its upward march against the common currency on Friday after the ECB President, Mario Draghi provided a strong hint in the policy meeting last week that the central bank is poised to undertake further stimulus as early as next month to combat continued low inflation in the region. Earlier last week, the Fed Chief, Janet Yellen, indicated that the Fed would continue to pursue an accommodative policy stance in order to boost economic recovery in the nation. Against this backdrop, speeches from few Fed policymakers will attract market attention this week, although they are unlikely to signal any dramatic shift in the Fed’s policy stance in the immediate future. The US Dollar is trading in a tight range against most of the majors this morning. With no major macroeconomic data in the US, today’s monthly budget statement will be keenly eyed. Going ahead this week, consumer price inflation along with regional manufacturing reports will keep market participants interested. Additionally, the housing market data will particularly be important, especially after the Fed Chief in her recent comments cast doubts over the strength of recovery in the housing sector.

Euro – European Markets

The Euro continued to trade lower against the US Dollar on Friday as market sentiment remained vulnerable following the ECB monetary policy meeting. The ECB President, Mario Draghi, offered a strong hint in the post meeting press conference that the central bank is willing to undertake measures to support the region’s economy, if the central bank’s updated inflation forecast in June presents a case for the ECB to embark upon conventional or non-conventional form of policy easing. Additionally, German trade surplus narrowed unexpectedly for March, with imports and exports contracting more than anticipated, further reflecting the pressure on the economy on account of a stronger Euro. Meanwhile, the Euro is trading in a tight range against most of its major counterparts this morning. This week’s speeches from few ECB policymakers will attract market attention to ascertain their views over the current and future monetary policy stance that the ECB might adopt in its June policy meeting. Separately, markets will keep a close watch on events unfolding in Ukraine, especially after pro-Russian separatists over the weekend declared a victory in a referendum on self-rule in eastern Ukraine.

Other Currencies – Highlights

The Japanese Yen is trading lower against the US Dollar in today’s trading session after data released overnight indicated that current account surplus in Japan narrowed for March, weighed down by rising imports and weak demand for exports, thereby raising concerns that economic recovery in the world’s third largest economy is being held back due to low shipments. Additionally, trade deficit in Japan widened significantly for March. The Japanese Yen was broadly lower against the US Dollar on Friday in a risk off trading session. With no major domestic macro data in today’s session, GDP numbers and consumer confidence report due later this week will keep investors in the Japanese Yen on their toes. Additionally, inflation print along with some other economic data in the US will be eyed to gauge economic recovery in the world’s largest economy.