BoE’s Policy Meeting Awaited
With Markit PMI gauges showing a robust level of expansion in the UK manufacturing, construction and services sectors for January, concerns among investors eased amid signs of a pickup in domestic activity despite muted inflation. Going forward, traders are likely to remain focused on the BoE’s policy meeting scheduled later today where the central bank is expected to hold its current policy stance.
Across the Atlantic, the ADP report showed that hiring pace in the nation’s private sector was weaker than expected for January, especially after last month’s ISM gauges showing mixed signs of development in the manufacturing and services sectors. In the Euro zone, concerns about a Greek exit strengthened among market participants, particularly after the ECB stated that it will stop funding Greece’s commercial banks.
Pound Sterling – UK Markets
The Pound gained ground against the majors yesterday following the release of upbeat Markit services PMI report in the UK. The report revealed that activity in Britain’s services sector improved more than expected for January, in line with the manufacturing and construction activity gauges, released earlier this week. These surveys indicate that the hiring pace in the nation picked up last month. With activity in domestic market showing signs of resilience, investors’ expectation of economic growth in the UK is likely to remain buoyed, despite muted inflation.
Today, Sterling traders will keep a tab on the BoE’s policy meeting where the central bank is expected to keep its key interest rate unchanged. An unexpected reversal was witnessed in last month’s voting pattern where policy makers unanimously voted to keep the central bank’s policy stance unchanged, deferring hopes of a sooner than expected rise in interest rates. Market participants will look forward to hints from the BoE to gauge the timing of an interest rate rise in the UK.
US Dollar – US Markets
Amid mixed US economic reports yesterday, the greenback remained range bound against the Euro. The ISM survey revealed that the pace of activity in the non-manufacturing sector in the US picked up more than expected for January and eased some concerns hovering over the economy’s resilience to the soft global macro conditions, especially after last month’s manufacturing PMI gauge showed a more than expected ease. Meanwhile, the ADP print showed that the number of job additions in the US private sector were less than expected for January, particularly after hiring pace in the nation’s energy sector decelerated amid weak global crude oil prices. With jobs growth in the US showing signs of weakness, traders will eye tomorrow’s official jobs market report.
Market participants will keep a tab on today’s trade data in the US which is anticipated to show a narrower deficit for December. Considering the downbeat preliminary US GDP data for the last quarter, a better than expected reading in today’s trade report is likely to strengthen prospects of an upward revision in the nation’s GDP reading going forward.
Euro – European Markets
The Euro gained ground against the majors today after data showed that German factory orders climbed more than expected for December, strengthening prospects of an upsurge in the nation’s macro trend for the last quarter of 2014. Meanwhile, the ECB’s economic bulletin offered no major surprise today, following which Euro investors will eye the European Commission’s survey later today to gain an insight into the Euro bloc’s economic growth forecasts, especially after the ECB’s recent announcement of quantitative easing measures in the Euro zone.
Yesterday, the ECB shunned Greece’s appeal to support the nation’s banks as the new leftist government seeks to negotiate debt relief with its international lenders. The ECB further revealed that it will no longer accept Greek government bonds as a collateral for funding the nation’s commercial banks. While the banks can still access funding from Greece's central bank at a higher cost, a stoppage in the ECB’s funding to Greek banks is likely to raise concerns about the country’s banking system and strengthen prospects of Greece’s exit from the Euro zone.
Other Currencies – Highlights
The Australian Dollar gained ground against the greenback earlier today, paring some of its yesterday’s losses. Data released earlier today showed that retail sales in Australia grew less than expected for December. However, the report further revealed that retail sales in volume terms outpaced estimates for the last quarter, as domestic inflation remained under check and boosted demand. Meanwhile, the Aussie Dollar is likely to remain broadly under pressure against its major counterparts for some time, mainly after the Reserve Bank of Australia unexpectedly lowered its benchmark cash rate earlier this week.
With little on the domestic macroeconomic front, market participants will scrutinise the statement of the RBA’s most recent policy meeting set for release tomorrow to gauge prospects of a further interest rate cut in Australia. Additionally, tomorrow’s US labour market report is likely to prove crucial to the Aussie Dollar-US Dollar pair.