Following a tumultuous week, talks of whether Britain should remain in the European Union (EU) are likely to grab headlines as European leaders are scheduled to gather in Brussels on Thursday for a much anticipated two-day summit. An agreement of the package of reforms announced by the UK Prime Minister, David Cameron, earlier this month would probably increase the scope of a June referendum. On the macroeconomic front, a string of notable domestic economic updates including the UK inflation report, jobs data and the central bank’s borrowing numbers are due for release in the coming days.

As the US takes a holiday, investors will closely watch the European Central Bank (ECB) President, Mario Draghi’s quarterly testimony to the Economic and Monetary Affairs Committee for signs of further monetary easing in March.

Pound Sterling – UK Markets

At the start of a new week, the Pound has edged higher against the Euro. In the past week, Sterling took a back seat against the major currencies amid no significant economic releases in the UK. However, market participants will see a very hectic UK macro calendar this week which will include the very important inflation report. In December, the UK consumer price index ticked up in line with market estimates. Although expectations are for the January report to show another slight improvement, the trend seen since early 2015 of the rate being very close to zero is expected to continue. Later in the week, the upcoming UK labour market data and the government borrowing figures will also attract noteworthy market attention. Apart from data releases, the 18/19 February EU summit on the renegotiation of UK’s terms of membership will take centre-stage this week. 

Earlier today, Rightmove, a property listings website, reported that the average house price in Britain’s housing market sharply rose in February due to varied reasons such as supply shortage in certain areas and an increase in the number of typical first-time home buyers in the market.

US Dollar – US Markets

The US Dollar traded broadly higher against most of the major currencies on Friday after upbeat US retail sales data fuelled optimism over the health of the nation’s economy. US retail sales showed a modest growth in January as steady hiring and increased wages indicated that consumers had more to spend. An increase in household spending, which accounts for a 70% share of the US economy, would help the US economy tackle headwinds emanating from a stronger greenback, sluggish global demand and financial markets rout. Separately, data showed that consumer sentiment in the US unexpectedly fell to a four-month low in February, as global growth concerns and volatility in the financial markets weighed on the consumer’s view of the economy. However, the overall trend in the economy indicated that investors still remain optimistic about the health of the US economy.

The greenback is trading mixed against its major currency counterparts this morning, as US takes a holiday for the President’s Day. Going forward, investor focus will be on the Federal Open Market Committee's (FOMC) minutes which are expected to highlight the less hawkish stance by the central bank amid expectations that it might keep its interest rates unchanged.

Euro – European Markets

The shared currency is trading on weaker footing against the greenback and the Pound this morning. With a light European macro calendar today, investor focus will be on the Euro zone’s trade data and a speech by the ECB President, Mario Draghi, at the EU Parliament Committee in Brussels later in the day. Data suggests that tumbling global equities and weakening global growth prospects have raised hopes for further expansion of the monetary stimulus by the ECB which could be hinted by the ECB President in his speech later today. Going forward, the FOMC minutes, scheduled later in the week, are expected to cause volatility in the trading of Euro - US Dollar currency pair. 

The Euro trimmed some of its losses against the US Dollar on Friday after the publication of a mixed set of economic reports in the US, albeit tepid data from the Euro region continued to weigh on the common currency. On the economic front, preliminary growth in the Euro zone expanded more than expected in the final quarter of the last year.

Other Currencies – Highlights

The Japanese Yen is trading on a weaker footing against the US Dollar today after data showed that Japan’s domestic growth contracted more than anticipated in the last quarter of the previous year, against an upward revision to the third quarter reading. The nation’s growth contracted due to weakness in private consumption that has clouded Prime Minister Shinzo Abe’s policy measures to boost growth and inflation in the world’s third-largest economy. This downbeat data has added pressure on the central bank to take further steps to save the ‘Abenomics’ programme initiated by its Prime Minister. Separately, final figures from the Ministry of Economy, Trade and Industry showed that Japan’s industrial production fell more than expected in December. 

The US Dollar continued to extend its gains amid continued optimism over upbeat retail sales data from the US and as investors’ eye the FOMC minutes that are expected to portray a less hawkish stance of the central bank amid volatility in the financial markets and tumbling oil prices.