The main focus in the UK docket today is the just released data on Britain's industrial activity. Official data showed that industrial production contracted in December, a contraction far worse than markets had anticipated. UK manufacturing also unexpectedly fell. Additionally, December reports for France and Italy revealed that industrial activity fell, defying expectations of an improvement from the previous month. 

Apart from data, market focus will turn towards the Federal Reserve (Fed) Chairperson, Janet Yellen’s testimony on the economy today and tomorrow, against the backdrop of falling stock markets, global weakness and sharply lower energy prices. Lawmakers will likely want to know the Chief’s views about the probable pace of further rate rises and the Fed’s role in supporting the economy. 

Pound Sterling – UK Markets

Britain’s industrial sector capped its worst quarterly performance in nearly three years, according to official data that was published just now. UK manufacturers had weaker than expected factory activity at their ends in December as energy production dropped due to the unseasonably warm weather. Also, December data showed that manufacturing output unexpectedly fell, marking its third monthly consecutive decline. Meanwhile, the Pound hardly moved against its major currency counterparts following the release of downbeat industrial and manufacturing output data in the UK. There is little going for Sterling as the ongoing debate about the UK’s future in the European Union and Bank of England’s reluctance to raise interest rates continue to add to the downside pressure on the UK currency. 

Moving ahead, investors will closely track the release of the National Institute of Economic and Social Research UK GDP estimates for the three months prior to January, which is due for release later today.

US Dollar – US Markets

The greenback is trading on a weaker footing against the Pound this morning, ahead of the US Fed Chairperson, Janet Yellen’s testimony to Congress. Yellen will draw significant market attention during her testimony for her views on how the global economic slowdown is affecting the nation, and for further indication about the pace of interest rate rises following the rate increase in the central bank’s policy meeting in December. Her comments on the inflation outlook will also be in focus. FOMC member, John C. Williams is also scheduled to speak later in the day. In economic news, investor focus will be on weekly mortgage applications in the US scheduled for release later in the day.  

The US Dollar traded on a weaker footing against most of the major currencies yesterday as growing worries about the health of the global economy continued to dampen expectations of a near term rise in interest rates in the US. On the economic front, the NFIB business optimism index fell to its lowest level in nearly two years in January, while job openings unexpectedly rose in December.

Euro – European Markets

The shared currency is trading lower against the Pound this morning amid a light economic calendar day in Europe. Today’s numbers for industrial output in France and Italy turned out to be weaker than expected for December. The downside surprise is likely to add another layer of concern that the wider Euro zone’s economy is faltering. Going forward, with falling equity markets and global slowdown concerns, weakness in industrial activity in the Euro zone is likely to heighten fears that recovery is fading in the New Year. Towards the end of the week, fourth quarter growth figures for the Euro zone and its largest economy might confirm these fears. Also, in a short while, the European Commission will release its latest economic growth forecasts. A weaker forecast could add further downside pressure on the Euro against the majors.

Yesterday, the common currency traded higher against the US Dollar despite dismal economic data in the Euro region, as concerns over global economic growth weighed on the expectations of further rate increases in the US by the Federal Reserve.

Other Currencies – Highlights

The New Zealand Dollar resumed its strong upside momentum against the US Dollar today. The currency pair is currently trading well above the 0.66 mark, amid weakness in the greenback due to the Fed’s probable interest rate rise concerns. In data released earlier, retail spending on electronic cards in New Zealand rose for January, led by hospitality and durables, while lower expenditure on fuel due to falling oil prices limited the rise.

Later in the day, spotlight will be on the US Fed Chairperson’s testimony before Congress, with major focus expected to be on concerns surrounding global economic growth and further interest rate increases in the US. Separately, MBA mortgage application and a speech by FOMC member, John C Williams, will also be eyed by investors for further direction in the Kiwi Dollar - US Dollar currency pair. Also on tab is New Zealand’s Business PMI, scheduled for release later today, which will be eyed to gauge the health of the nation’s business sector.