A Quiet Day Ahead
With no macro triggers in the UK today, investors are likely to remain focused on tomorrow’s key economic updates. The minutes of the BoE’s most recent policy meeting will be eyed to gauge the timing of an interest rate rise in Britain. Additionally, the official labour market report in the UK will attract considerable attention to determine if wage growth for the three months ended November continues to outpace the nation’s inflation.
Across the Atlantic, markets are closed on account of Martin Luther King Day. In the Euro zone, the ECB’s policy meeting scheduled later this week will gain significant attention, especially amid heightened speculation that the central bank might unleash new quantitative easing measures to stave off deflationary threat in the region.
Pound Sterling – UK Markets
The Rightmove report released yesterday showed that house prices in the UK grew at a strong pace for January, in contrast to recent surveys showing that activity in Britain’s housing market is decelerating. The report revealed that housing demand among first time buyers increased amid favourable stamp duty reforms and home sellers hiked their ask prices which kept property prices in the nation buoyed this month. However, the Director of Rightmove expressed caution that sellers would find it harder to sell their homes during 2015 compared to the last year, especially considering the general election scheduled in the UK later this year. Meanwhile, with a light macro calendar in the UK, Sterling investors are likely to remain on the side-lines.
Moving ahead, market participants will keep a tab on the minutes of the BoE’s most recent policy meeting tomorrow to gain an insight into the timing of an interest rate rise in the UK. Additionally, Sterling traders will keenly eye Britain’s labour market report for the three months ended November which is anticipated to show that domestic earnings growth picked up for a third consecutive time.
US Dollar – US Markets
On Friday, the US Dollar gained ground against its major peers. Data revealed that consumer price inflation in the US eased slightly less than expected for December, although the core consumer price inflation reading showed an unexpected downside last month. In light of the latest labour market print showing signs of weakness in domestic wage growth, Friday’s mixed inflation reading has stoked concerns among investors. Meanwhile, the preliminary Reuters/Michigan survey for January showed that confidence among consumers in the US reached its highest level since January 2004, amid improving labour market health and an increase in consumers’ disposable income led by a sharp fall in gasoline prices. Additionally, another report indicated that US industrial production fell slightly for December as a warmer than usual weather dampened demand for utilities and manufacturing output in the nation moderated last month as an impact of a strong US dollar and weaker overseas markets weighed on domestic activity.
With a US public holiday on account of Martin L. King's birthday today, the greenback is unlikely to witness major volatility against the majors.
Euro – European Markets
The Euro lost major ground against the greenback on Friday and briefly fell below the 1.15 level following the release of Euro zone’s revised inflation report. Data confirmed that consumer prices declined for December, the first time since October 2009 and showed that the core inflation reading failed to pick-up last month. This report strengthened speculation among traders that the ECB might implement a sovereign bond purchase programme in its policy meeting this week, especially after the European Court of Justice recently ruled in favour of the ECB’s outright monetary transaction plans.
Data released earlier today indicated that current account surplus in the Euro zone narrowed for November. However, the Euro has continued to trade on a firmer footing against the majors this morning. Going forward, traders will closely eye tomorrow’s ZEW surveys in Germany and Euro zone to verify if expectations of a quantitative easing programme in the Euro area improves morale among domestic traders. Separately, with Greece’s snap elections scheduled over the weekend, the Euro is likely to experience volatility.
Other Currencies – Highlights
The Japanese Yen is trading on a firmer footing against the greenback this morning. The Cabinet Office’s survey for December revealed that consumer confidence in Japan improved for the first time in five months, particularly after the Prime Minister, Shinzo Abe, decided to postpone the second stage of the consumption tax hike. Meanwhile, another report showed that Japan’s industrial production declined sharply for November, registering its second consecutive fall. Market participants will keep a tab on the nation’s industrial output numbers going forward to gauge if a weaker Japanese Yen along with the BoJ’s recently introduced stimulus measures help improve conditions in the local market.
With little on the domestic macroeconomic front, investors will look forward to the BoJ’s and the ECB’s policy meetings scheduled later this week for further direction to risk appetite.