German IFO Data Signals Cautious Mood
In a slow start to the new week, key economic data for the day was from Europe in the form of the Ifo survey numbers that tracked the dampened mood in the German business sector. The closely monitored Ifo business climate indicator and the sub-component current assessment index dipped lower in January. Aside from data, the President of the European Central Bank (ECB) is due to give a speech later in the day, which will attract some market attention. The Euro had fallen broadly across the board last week after the ECB Chief hinted at a possible policy action in March.
In the session ahead, an update of the UK’s CBI industrial trends survey and the US Dallas Federal Reserve manufacturing index are scheduled for release later today.
Pound Sterling – UK Markets
Earlier today, Sterling was trading on a firmer footing against the greenback. But as of now, the Pound has stalled its recovery rally and is trading in a close range against the US Dollar after it had briefly touched the 1.43 mark earlier today. Going forward, the Pound – US Dollar currency pair will likely continue to remain pressured as markets re-focus on risks arising due to a possible European Union referendum and on the back of dovish comments by the Bank of England (BoE) Governor Mark Carney last week. Massive UK account deficits and lower inflation outlook are also likely to weigh on the Pound.
On the macroeconomic front, the Confederation of British Industry will publish results from its January survey later in the day. Expectations are for the gauge of industrial orders in the UK to offer no relief and stay in negative territory for the tenth consecutive month in January, reflecting the current weak global economic conditions. Going forward, the BoE Governor’s speech is scheduled tomorrow along with preliminary fourth quarter UK GDP data due for release later in the week.
US Dollar – US Markets
The US Dollar is trading on a weaker footing against most of the major currencies this morning. With little data on tab in the US today, investor focus will be on an update by the Dallas Fed which is expected to show that business activity in the region remained in contraction zone for the thirteenth consecutive month. Even though expectations are for the index reading to slightly rise from the final month of the previous year, recent dismal numbers from manufacturing PMI and NY empire state manufacturing indices in the previous two weeks have added to fears that the reading might not meet expectations.
On Friday, the greenback traded higher against most of its key currency counterparts after a preliminary Markit survey indicated that activity in the manufacturing sector rebounded in January against expectations for further slowdown. In the previous week, a fall in housing starts and building permits in December had hinted at a slowdown in the US housing market in the New Year. However, data on Friday showed that sales of previously owned homes in the US strongly rebounded in December from a 19-month low.
Euro – European Markets
This morning, the shared currency made a small recovery from Friday’s drop against the US Dollar. The German Ifo surveys attracted some market attention as they highlighted the impact of the recent market volatility on economic sentiment. However, it has had minimal impact on trading in the single currency against the majors. Data revealed that the German current conditions index declined more than expected in January as companies assessed their current business situation less favourably, coupled with expectations for future developments slumping more than anticipated last month. The January figures for the Ifo Business Climate indicator for the German service sector fell for the second straight month, hinting that companies in the nation are increasingly concerned about the sluggish global economy.
Last week, the Euro had sharply weakened against the major currencies last week as the ECB governing council unanimously agreed to review and reconsider its monetary policy at its next meeting in March. Today, the ECB Chief, Mario Draghi, is set to speak again, and could have some impact on trading in the Euro against its key peers.
Other Currencies – Highlights
The Japanese Yen recorded gains against the US Dollar earlier today after Japan reported upbeat trade figures for December which bolstered sentiment around the local currency, halting the recent bullish run in the US Dollar - Japanese Yen currency pair. The nation recorded a higher than expected trade surplus for December, with imports falling more than exports during the period. This follows a trade deficit in the previous month.
Investors will now eye the Bank of Japan’s (BoJ) monetary policy meeting, scheduled at the end of this week. This assumes significance after the BoJ Governor, Haruhiko Kuroda, stated on Friday that adopting a negative interest rate policy was not on the central bank radar. Meanwhile, he signaled that the central bank might adopt further expansion of its current massive asset-buying programme to ease its monetary policy further. Later in the week, investors will eye Japan’s retail trade, consumer price inflation, industrial production and jobs data ahead of BoJ’s monetary policy meeting.