The US Federal Reserve (Fed) raised interest rates in December, the first increase in nearly a decade, and since then the financial markets have wobbled and a weakening in certain activity indicators has been noticed. Today, market focus will be on the February update of the US labour market report for signs of an improved outlook on economic growth. Expectations are that US employers stepped up hiring last month, signalling labour market strength that could ease fears of the outlook of the economy and encourage the US central bank to lift borrowing costs this year.

Meanwhile, it is a light economic calendar day in the UK. Earlier today, the final GDP print showed that Italy’s economy grew in line with previously announced estimates for the fourth quarter.

Pound Sterling – UK Markets

The Pound is trading on a weaker footing against the US Dollar and the Euro this morning. Given the light economic calendar in the UK, the current weakness in Sterling against its key peers cannot be attributed to fundamentals. Moving ahead, much of the trading direction in the Pound – US Dollar currency pair will be dependent on the upcoming US non-farm payrolls report. Even if the US labour market data disappoints, gains will be limited in Sterling as it continues to be weighed down by persistent worries about Britain’s membership of the European Union.

The Pound hardly moved against the greenback yesterday despite a sharp drop in the UK services PMI, thus painting a gloomy picture for the nation’s growth. The survey indicated that growth in the UK’s dominant services sector was the weakest in three years for February. Survey responses revealed that private sector firms were wary about signs of faltering demand, growing risks of a Brexit and weak economic growth at home and abroad. The slowdown in February’s services, manufacturing and construction PMIs signal that the pace of economic growth is rather sluggish.

US Dollar – US Markets

The US Dollar is looking for direction against the Euro this morning, as investors continue to digest yesterday’s service sector employment data while looking ahead to the US non-farm payrolls later today for possible relief. Market participants are likely to trade in caution before the comprehensive US labour report, as it will be the last jobs data before this month’s policy meeting of the Fed. Expectations are for job growth to have picked up and the unemployment rate held unchanged for February. A strong payrolls report today would likely bolster confidence in the US economy and could nudge market expectations higher for policy tightening this year. There would be more compelling signals for the Fed, if in addition to the headline employment number, wages also pickup. A strong wage print will create greater optimism about how well the labour market is positioned against a weaker global backdrop.

Yesterday, the greenback traded lower against the Euro following weakness in factory orders and continued contraction of the ISM non-manufacturing index for February.

Euro – European Markets

The Euro extended its upside momentum against the Pound this morning after the release of the final print of Italy’s fourth quarter growth figures which were in line with the preliminary estimates published in the previous month. The final GDP data confirmed that the Italian economy expanded for the fourth consecutive time in the final quarter, making 2015 the first year in which the nation’s economy grew in all the quarters of a single year. In the coming week, the European docket has very few noteworthy economic releases. In the absence of significant macroeconomic indicators, market focus will gradually start shifting towards next Thursday’s meeting of the European Central Bank’s (ECB) Governing Council. The ECB decision will be closely monitored amid expectations of further monetary policy easing on 10 March.

Yesterday, the common currency surged above the 1.09 mark against the US Dollar as a slew of disappointing US economic releases weighed on the greenback. In Europe, growth in the private sector decelerated to its weakest pace since January 2015, triggering fears of sluggish economic growth stalking the Euro zone.

Other Currencies – Highlights

The US Dollar - Canadian Dollar currency pair is trading just above the 1.34 mark today, tracking the movement of oil prices. In the session ahead, market focus will shift towards a string of economic releases scheduled in the US and Canada later in the day. Trading in the currency pair will particularly be influenced by the US non-farm payroll data, due for release in a few hours. Canada’s trade data, labour productivity and Ivey PMI will also be eyed by the Loonie traders.

Market expectations are for the Canadian international merchandise data to show a significant widening of the trade deficit in January on the back of a sharp fall in aerospace exports during the period. The labour productivity indicator, which is directly linked to Canada’s labour-related inflation, is anticipated to have flattened in the fourth quarter of 2015 after a slight upswing in the previous quarter. The Canadian docket will wrap up for the week with Ivey PMI which is expected to show that business activity in Canada continued to expand but at a slower pace from the previous month.