UK Industrial and Manufacturing Production Recovers
This morning, investor focus is on the Pound as the day is filled with notable economic reports from the UK. The just released UK industrial production figures showed a minor improvement for January, following a contraction in the previous month. Additionally, Britain’s January production report printed higher than expected despite strong headwinds that blew into the economy at the start of the year. Later in the session, the National Institute of Economic and Social Research (NIESR) will publish its widely read estimate of UK GDP for the three months through February. In other news, a Bank of England (BoE) policymaker stated last night that there was plenty of scope to stimulate the economy if needed.
In Europe, the spotlight is on tomorrow’s policy meeting outcome from the European Central Bank (ECB).
Pound Sterling – UK Markets
The Pound traded lower against the US Dollar yesterday. The losses in the currency pair could be attributed to recent dovish comments by the UK central bank’s policymaker, Martin Weale, that rates could be cut or a fresh round of quantitative easing could be launched if required. The pair also dipped on growing concerns of the outcome of the upcoming UK referendum.
On the macroeconomic front, the just released data showed that output in Britain’s industrial sector grew slightly slower than anticipated for January, but the recovery came after a sharp drop in December. However, growth in factory output was still below the peak witnessed in early 2008 which hints that the outlook of the UK’s industrial sector for 2016 remains bleak. Additionally, data showed manufacturing production in the UK bounced back in January and topped market expectations. Sterling has reversed its losses and is now trading higher against its key peers. In a short while, investor focus will shift towards the NIESR publication of UK GDP estimate for the three months ended February.
US Dollar – US Markets
The US Dollar traded lower against the Euro and the Japanese Yen yesterday as renewed concerns about a slowing global economy further dampened expectations of an interest rate increase by the US Federal Reserve in its upcoming monetary policy meeting next week. In economic news, a survey by the National Federation of Independent Business indicated that small businesses in the US were less optimistic in February, with the index unexpectedly dipping to its lowest level since February 2014. Data is at odds with recent updates such as employment, consumer spending and manufacturing which have strongly hinted at a pick-up in economic activity in the New Year.
This morning, the greenback regained momentum and is now trading on a stronger footing against most of the major currencies. In the absence of relevant macroeconomic indicators in the US scheduled for release today, traders will continue to track broader market sentiment for further direction. Also, a set of US economic releases which include weekly MBA mortgage applications and wholesale inventories report which are due in a few hours might attract some market attention.
Euro – European Markets
The Euro is trading on a weaker footing against the US Dollar and the Pound this morning amid no significant macro economic reports scheduled for release in the Euro area today. In addition, investors remain cautious ahead of the outcome of the ECB monetary policy meeting tomorrow. Expectations for the central bank to announce further aggressive easing measures have heightened as it tries to revive the struggling Euro zone economy from the clutches of persistently low inflation. The Euro area has slipped back into deflationary territory on the back of a sharp drop in oil prices. Tomorrow, the central bank’s latest quarterly economic forecasts will show whether inflation has fallen far below target this year and next.
Meanwhile, yesterday’s revised Euro zone GDP data showed that the economy expanded in line with market estimates for the fourth quarter, while growth was revised higher compared to the final quarter of 2014. The economy grew steadily as a surge in investment spending assisted in offsetting weak household consumption in the Euro zone.
Other Currencies – Highlights
The Canadian Dollar has reversed some of its losses against the greenback and is trading marginally lower today. However, the local currency has had a massive recovery from the losses incurred against the US Dollar in January when Canada’s central bank had surprised many traders by not cutting rates. Later today, the Bank of Canada (BoC) will announce its latest interest rate decision at a monetary policy meeting. Expectations are rife that the central bank will keep the benchmark interest rate unchanged and the BoC Governor, Stephen Poloz, would maintain a neutral stance in the accompanying statement. The BoC Governor, at the January policy committee gathering, had cautioned that simple alterations to the policy would not be enough to fix the problem, however some measures could cushion the negative effects of factors such as the slide in oil prices.
Following the interest rate decision, markets will shift their attention towards Canada’s new house prices and jobs data, scheduled for release in the coming two days.