FOMC Minutes in the Limelight Today
The main economic event of the day is the Federal Open Market Committee’s (FOMC) meeting minutes from the December policy meeting, which saw the Federal Reserve (Fed) raising interest rates by 25 basis points for the first time in 2016. It will be interesting to see if the minutes provide any further details about the central bank’s outlook as newly-elected President, Donald Trump takes office. The US economic data docket also features the release of ADP employment change and MBA mortgage applications.
The fresh data out of the UK showed that construction output handily surpassed market consensus in December while the nation’s consumer credit rose to an 11-year high in November. In the Euro zone, private sector registered its fastest growth since May 2011 in the last month while Germany’s Markit final services PMI expanded at a faster pace than previously estimated in December.
Pound Sterling – UK Markets
The Pound is trading on a stronger footing against the shared currency and the greenback this morning, as the just out data indicated that the British construction sector growth accelerated more than expected in December, as new order growth rose to an 11-month high. Additionally, the consumer borrowing in the nation picked up pace in November, registering its fastest pace in 11 years. Separately, data released by BRC showed that deflation in shop prices fell in December.
Yesterday, Sterling weakened against the US Dollar after registering an initial rise following the release of UK’s Markit manufacturing PMI. The nation’s manufacturing growth accelerated to a two and a half year high in December, driven by strong overseas and domestic demand and a weaker Pound. Meanwhile, the recent Brexit developments brought some disappointing news as the UK’s ambassador to the European Union (EU), Sir Ivan Rogers unexpectedly announced his resignation. He was anticipated to play a key role in facilitating Britain’s smooth exit from the EU, ahead of the formal negotiations expected to begin by end of March.
US Dollar – US Markets
The US Dollar traded higher against its major peers yesterday, after data indicated that the ISM manufacturing PMI in the US registered a higher than expected rise in December, notching its strongest level since December 2014, reflecting firmer output and the largest pickup in orders growth since August 2009. Moreover, Markit’s manufacturing PMI expanded in December, reaching its highest level in 21 months, supported by an increase in employment growth and inventory building. Additionally, construction spending in the country advanced more than expected in November, achieving its best level since April 2006.
The US Dollar has trimmed its previous session gains against the shared currency and the Pound this morning, ahead of the minutes of the US Fed’s December meeting. Apart from the discussion over the 25bps increase in the benchmark interest rate, market participants will closely watch for discussion of potential changes in monetary policy under the Trump administration. On the data front, a couple of second tier releases are set to cross wires later today, viz., US MBA mortgage applications, the ISM New York index and ADP employment change data.
Euro – European Markets
This morning, the shared currency is trading higher against the US Dollar, after data indicated that Euro zone’s services sector grew more than initially expected in December, although at a slower pace as compared to the earlier month. Economic activity in Euro zone industry expanded in December at the fastest pace since May 2011, driven by a rise in manufacturing and production growing at the quickest pace since April 2014. In addition to this, the German and French final print of services PMI also beat consensus and supported the uptrend in the Euro. Going ahead, the Euro zone’s consumer prices data for December will be eyed and is anticipated to advance during the same month.
Yesterday, data showed that preliminary reading of German consumer prices came in ahead of market estimates in December, notching its highest level since July 2013. However, the statistics did not benefit the shared currency against its major peers, as investors remained concerned with the longer-term outlook of the Euro zone’s powerhouse economy.
Other Currencies – Highlights
The Japanese Yen commenced the New Year on a weaker note against the US Dollar, with the greenback rising to a fresh 14-year high against a basket of six major currencies, amid optimism about the health of the US economy and expectations of further interest rate rises from the US Fed. However, the Japanese Yen recouped some of its losses against the US Dollar this morning, after the final Nikkei manufacturing PMI expanded for a fourth successive month in December, recording the highest reading since December 2015, and suggesting that factory output was stabilising amid uneven international demand. Today’s monthly update on manufacturing sector indicates that the nation’s economy maintained growth momentum for the fourth quarter of 2016.
Going ahead, market participants would focus on Japan’s Markit services PMI and monetary base data, scheduled to be released overnight for further direction in the currency pair.