The just released inflation report has shown that annual consumer prices in the UK grew at a slower than expected pace for November. However, encouraging producer price inflation data has overshadowed a weak consumer prices report, leading the Pound to nudge higher against the majors this morning. Meanwhile, risks emanating from the Euro zone’s weak macro health, as highlighted in today’s BoE financial stability report, has limited the upside in the Pound.

Across Europe, data released earlier today showed a more than expected improvement in Euro zone manufacturing activity for December. Going forward today, the flash Markit manufacturing PMI reading in the US will provide an early insight into the nation’s manufacturing sector performance, especially after yesterday’s upside surprise in industrial production data.

Pound Sterling – UK Markets

Data just out has revealed that consumer price inflation in the UK eased to a 12-year low for November due to the recent drop in global crude oil prices. The inflation report has offered no reason to consider possibilities of an early interest rate rise in the UK. However, the BoE Governor, Mark Carney, in his speech earlier today indicated that the drop in oil prices is a net positive for the UK economy. This, along with better than expected producer prices data, has provided some support to the Pound against the majors this morning. However, the BoE, in its latest financial stability report, warned that the Euro zone’s weak macro climate might weigh on the prospects of the UK economy. Separately the BoE, in its bank stress test results, indicated that most of the major banks are financially sound and healthy enough to withstand a sharp fall in house prices.

Yesterday, Sterling lost ground against the majors and dropped below the 1.57 mark against the greenback, hurt by strong US industrial production data. The encouraging CBI industrial trends survey in the UK failed to arrest losses against the majors.

US Dollar – US Markets

Yesterday’s release of upbeat US industrial production data for November lifted the greenback against the Pound. The report showed that industrial output expanded at its strongest pace since May 2010 as US manufacturers ramped up production amid signs of higher demand and as the November winter kept domestic production of utilities supported. With little evidence of the US manufacturing sector being affected by soft global macro conditions and a strong US Dollar, prospects have strengthened that economic growth in the nation remained on a firmer footing for the last quarter of 2014. Against this backdrop, market participants will keep a tab on December’s preliminary Markit manufacturing PMI reading in the US due later today to gain a better insight into the nation’s economic health. Additionally, housing starts and building permits data for November will be eyed later today to gauge the pace of activity in the construction sector.

The US Dollar is anticipated to remain under pressure against most of its key peers today, tracking encouraging manufacturing data in Europe.

Euro – European Markets

The preliminary Markit manufacturing PMI report released earlier today revealed that the pace of activity in Germany improved more than expected for December. This further resulted in an upside in Euro zone PMI readings, thereby suggesting that the recent stimulus measures of the ECB have played some part in arresting the region’s downward macro trend. Today’s data has brought some relief to investors and lifted the common currency against the greenback this morning. Market participants will now keep a tab on the ZEW survey in Germany scheduled later today, which is expected to show a sharp improvement in economic sentiment for December amid prospects of an outright bond purchase programme in the Euro zone. Going forward, traders are expected to remain on their toes ahead of the first round of the Presidential election in Greece tomorrow, especially amid possibilities that a victory for the opposition party might lead to an exit of the nation from the European Union.

With no other macro updates scheduled in the Euro zone, investors will eye this week’s German IFO and GfK surveys for further direction.

Other Currencies – Highlights

The Aussie Dollar is trading broadly in a tight range against the greenback this morning, showing little reaction to the minutes of the Reserve Bank of Australia’s most recent policy meeting and weak Chinese manufacturing activity data released earlier today. The minutes failed to provide any clarity over the recently heightened speculation of an interest rate cut in Australia. The publication revealed that the central bank is concerned about the elevated Aussie Dollar which is above its estimated fundamental value, especially considering the recent fall in commodity prices. Additionally, the minutes indicated that policymakers are trying to boost non-mining investments, but the current weakness in the nation’s labour market is likely to weigh on the domestic confidence in the near term.

With little on the domestic macroeconomic front this week, the Aussie Dollar is expected to take direction from the Fed’s monetary policy meeting outcome and the consumer price inflation report in the US.