UK Services Activity Remains Robust
Prospects of a revival in domestic economic growth during the first quarter of 2015 received a boost after today’s data showed a better than expected expansion in Britain’s services sector. With encouraging signals emerging from the UK private sector at the start of 2015, it remains to be seen if the British economy maintains this momentum during the course of the year.
Fresh developments in Greece yesterday helped calm nerves and led the common currency higher against its peers, as the newly elected government seemed to have softened its aggressive stance on the bailout agreement renegotiations with its creditors. For the week ahead, market focus shifts to the critical labour market releases from the US.
Pound Sterling – UK Markets
Consistent with signs of economic strength in the UK during the early phase of the first quarter, today’s PMI data revealed that services activity improved at a stronger than expected pace for January. The latest PMI releases have strengthened hopes of an upturn in British private sector activity. It remains to be seen if the current momentum lasts for the entire quarter, thereby supporting a meaningful rebound in UK economic growth following a minor slowdown witnessed during the previous quarter. The British Pound continued to consolidate on yesterday’s gains against the US Dollar, seemingly supported by robust PMI figures. Earlier today, data from the BRC showed that shop prices declined at a slower pace for January. However, food prices registered their biggest drop in eight years, largely due to tough competition and falling raw material prices.
In contrast to surprises seen from the global monetary policy arena, the BoE’s policy meeting scheduled tomorrow is likely to remain a low key affair, especially after the latest minutes showed unanimity among policymakers to leave policy tools untouched.
US Dollar – US Markets
Encouraging developments in Greece and weak US factory orders data led the US Dollar to move lower against the majors in yesterday’s trading session. Market focus now shifts to domestic economic releases for further direction. With the latest macroeconomic indicators confirming its overbearing influence on the revival of the world’s largest economy, the upcoming labour market releases will be scrutinised to gauge if the job market continues to show resilience. With the official labour market data due later this week, today’s ADP employment data will be watched for initial signals of any further improvement in the labour market in the beginning of 2015.
Separately, the ISM services sector data will also gain attention to ascertain the state of affairs in the private sector activity in early 2015. With few US economic releases building a strong case for a mid-2015 interest rate rise, members of the FOMC also seem to have taken note of these developments. The St. Louis Fed President, James Bullard, stated that the Fed must consider dropping its pledge to remain “patient” on raising interest rates.
Euro – European Markets
The Euro rallied against its major peers yesterday and toppled the 1.14 mark against the US Dollar after reports emerged that Greek officials are currently working on a debt swap proposal which is unlikely to demand a write down on the nation’s debt. As per the plan, Greek officials propose to swap government debt with bonds, with interest rates linked to Greece’s economic growth. Although there remains limited clarity over the EU’s response to the proposed plan, “risk on” sentiment received a boost and equity markets in Greece rallied amid hopes that the nation might refrain from aggressively renegotiating its debt commitments with creditors.
On the macro front, data showed that Euro zone producer prices declined sharply for December, further reaffirming the benign price environment in the region largely on account of falling commodity prices. With the single currency holding close to yesterday’s highs against the US Dollar this morning, focus remains on developments related to negotiations between Greece and its creditors. Retail sales data from the Euro zone today will be eyed for further direction.
Other Currencies – Highlights
The Kiwi Dollar strengthened against the US Dollar this morning, in response to the encouraging Global Dairy Trade auction overnight. Data showed that whole milk powder prices surged in the auction, thereby raising optimism that Fonterra Co-operative Group, the leading dairy group in the nation, might meet its forecast payout to dairy farmers and help underpin the nation’s economic growth. However, the upside in the New Zealand Dollar remained capped after data released earlier today showed that the unemployment rate in New Zealand climbed surprisingly for the fourth quarter of 2014. Additionally, the Reserve Bank of New Zealand Governor, Graeme Wheeler, indicated that he will keep interest rates unchanged for some time. Yesterday, the New Zealand Dollar briefly fell against the greenback after the Reserve Bank of Australia unexpectedly cut interest rates, thereby stoking speculation that the RBNZ might follow suit.
With no major economic releases in New Zealand scheduled this week, crucial macro updates in the US will provide further direction to the Kiwi Dollar against the majors.