ECB to Take Centre Stage in Europe
This morning, investors are largely waiting on the sidelines as the European Central Bank (ECB) is widely expected to unveil a new package of measures for the beleaguered Euro zone later today. The measures could involve a cut in the discount rate alongside an extension in the current QE programme. Volatility in trading in the Euro against the major currencies could be assured after the ECB action today.
In more news from the central banks, hawkish remarks by the Federal Reserve (Fed) Chairperson yesterday that the current economic conditions were right enough to increase interest rates boosted the US Dollar. On the macro front, the US ISM non-manufacturing index and factory orders data is due later today. In the UK, services sector growth expanded more than expected in November, countering slower growth in manufacturing.
Pound Sterling – UK Markets
Sterling was unchanged against the US Dollar this morning even after fresh economic indications out of the UK economy pointed to stronger economic expansion in the final quarter of this year, offsetting weakness shown in manufacturing and construction surveys earlier this week. The new survey figures published just now indicated that Britain’s services sector, which makes up more than three-quarters of the private sector economy, maintained its healthy state by expanding at its fastest pace in four months for November. With the Bank of England (BoE) remaining more dovish in tone, an early 2016 interest rate move still looks increasingly unlikely despite the surprise upturn in service sector expansion.
The Pound dropped below the 1.50 mark against the greenback yesterday for the first time since April this year, following relatively hawkish comments by the US Fed Chair and upbeat US ADP jobs report which fanned December rate rise hopes further. Also, November UK construction sector gauge plunged the most in seven months, which in turn weighed on the appeal of Sterling.
US Dollar – US Markets
The US Dollar is trading firmer against a basket of major currencies this morning, as fresh comments by the Fed Chairwoman Janet Yellen reinforced the case of an interest rate rise later this month which in turn boosted the appeal of the greenback. She noted that since the last FOMC monetary policy meeting, the economic fundamentals received have been consistent with the US central bank’s expectations of continued improvement in the US labour market. Also, on the data front yesterday, US private employers added more number of jobs than what had been anticipated for November, thus boding well for tomorrow’s official jobs report. Going forward, policymakers will mostly assess all available data and gauge their implications for the economic outlook before making any policy decision announcement on December 15-16.
In addition to keeping an eye on the ECB’s policy decision today, currency traders will also make a note of a couple of US economic publications such as services PMI and ISM report, weekly jobless claims and factory orders data which are scheduled for release in the session ahead.
Euro – European Markets
This morning, the shared currency is tilted to the downside against the Pound and the US Dollar as the ECB stands prepared and willing to further expand its quantitative easing programme. Expectations are rife for the central bank to make a dovish decision in its monetary policy meeting later today, while the Euro is under pressure due to heightened speculation surrounding the extent of further stimulus that would be rolled out by the ECB in the upcoming session. The Euro stands at risk of facing further downside pressure against its key peers if the governing council enlists more policy tools to spur growth in the wider Euro area economy, given the lack of inflationary pressures in the economy accompanied by the weakening outlook for global growth.
Meanwhile, the ECB has received more macroeconomic data points to cite for earlier in the day before it embarks on further policy easing. The final services data in the Euro zone for November indicated that activity ticked up from the previous month, though it fell shy of initial estimates as firms increased their headcount at the fastest rate in six months.
Other Currencies – Highlights
The US Dollar – Japanese Yen currency pair has currently regained most of the lost ground. The greenback had earlier pared some of its gains against the Japanese Yen after trading on a stronger footing in the New York trading session on fresh indications that the US central bank will raise its key interest rate later this month which was triggered following the Fed Chairperson’s dovish tone and after upbeat ADP private employment report. In domestic economic news, Japan’s service sector firms earlier today reported a slower rate of expansion in activity growth for November following a moderation in new business orders. In addition, data revealed that employment level at Japan’s services firms fell for a second consecutive month. A combination of slower order growth and a dip in employment subsequently led to overcapacity and a rise in outstanding work last month.
With not much in the way of key data in Japan for the remainder of this week, investor focus will be on the latest non-farm payrolls report in the US due tomorrow for further direction.