G20 Meeting and US Q4 GDP Data in Spotlight
The two-day summit of finance ministers and central bankers from the G20 group of nations kicked-off earlier today in Shanghai, amid mounting global economic growth fears and recent financial market turmoil. Speaking at a conference ahead of the G20 meeting, the Bank of England (BoE) Governor noted that the decline in market liquidity has contributed to stress in financial markets and monetary policy ambitions were not in sync with structural measures.
In economic news, a GfK survey earlier today indicated that the UK consumer confidence dived to its lowest level since December 2015. Separately, the French GDP came in better than expected for the final quarter of 2015, while Spanish consumer prices fell the most in five months for February. Across the Atlantic, the revised estimate of Q4 GDP, core PCE inflation and consumer spending data is on tab later today.
Pound Sterling – UK Markets
The Pound had briefly retraced above the 1.40 mark against the US Dollar this morning on the sidelines of a meeting of finance officials and central bankers today. The BoE Governor, Mark Carney, earlier today supported the central banks’ recent moves to expand monetary stimulus to spur growth in their respective economies. He blamed the lack of accompanying structural measures to revive global growth. The BoE Governor’s comments came two days after the IMF had criticised the G20 club, in failing to deliver on promises to spur growth in the wake of the turmoil in global financial markets.
On the macro front, early morning UK data showed that the GfK consumer sentiment index in February sharply fell to its lowest level in more than a year. The survey showed that weak a global economic growth outlook and instability in financial markets weighed on the consumers’ economic optimism despite the positive impact of persistent lower inflationary pressures on households. Going forward, consumer optimism could further be deteriorated as the upcoming referendum adds to potential risks for the UK economy this year.
US Dollar – US Markets
The greenback is trading lower against the shared currency this morning. Investors remain cautious ahead of a string of key US economic reports including the second estimate of the fourth quarter GDP which is scheduled for release later in the day. Data is anticipated to show that the US economy expanded at a slower pace in the fourth quarter than initially estimated. A downwardly revised GDP data would mean that the US Federal Reserve (Fed) chose to raise interest rates while the US economy was still slowing down. This is also evident from the Fed Chairperson, Janet Yellen’s testimony earlier this month, where she had acknowledged the slowdown, however, she maintained the gradual rate rise path. Looking at today’s other reports, consumer spending or core personal consumption expenditure, which is still the backbone of the US economy, is expected to rise in January.
The US Dollar nudged lower against the majors yesterday, following a mixed set of US economic data releases. Official figures indicated that initial jobless claims inched up, while durable goods orders strongly rebounded in January.
Euro – European Markets
The shared currency gave up part of its gains against the US Dollar and the Pound this morning, following a rally in the European stock market. Also, the release of downbeat Spanish CPI data earlier today weighed on the Euro currency. Spanish consumer prices fell more than expected in February, indicating persistently lower inflationary pressures across the Euro zone amid talks of more ECB stimulus. In some positive news, the French economy expanded at a faster than expected pace in the fourth quarter of 2015.
In the later part of today’s session, investor focus will shift towards German inflation and Euro zone sentiment data which could provide broad direction to the Euro against its key peers. The preliminary estimate of German CPI data is anticipated to show a bounce back in price pressures in the Euro zone’s biggest economy from a month ago, but the annual reading is expected to slow in February. The Euro zone’s economic sentiment index is projected to fall in January, after rising to the highest level since April 2011 in the previous month.
Other Currencies – Highlights
The US Dollar - Japanese Yen currency pair is currently trading below the 113.00 mark due to persistent weakness in the greenback across the board. On the data space, overnight data showed that core consumer prices remained unchanged in January due to falling fuel costs and sluggish consumer demand. The flat inflation data highlights the challenges the Bank of Japan (BoJ) faces in attempting to lift the nation out of stagnation. Last month, The BoJ adopted negative interest rates in a bid to generate a positive cycle across businesses in the economy to drive up wages and consumption. The flat growth in today’s core consumer prices data has offered another reason for BoJ policymakers to further extend the pace of monetary stimulus at its upcoming policy meeting. The Japanese Yen had briefly drifted lower against the greenback in response to this data, but later reversed its course.
Going forward, market participants will eye a slew of US economic releases including the US GDP print, scheduled for publication later today, for further direction.