UK Trade Deficit Widens & Construction Output Slips
The European Central Bank (ECB) President, Mario Draghi, yesterday unveiled a comprehensive stimulus package to boost the Euro zone’s fragile economy, however, Draghi also dampened prospects for future interest rate cuts. The comments led to the Euro more than making up the losses it made in the immediate aftermath of the central bank’s rate decision. As investors continue to digest actions of the ECB, the European economic calendar published the final German inflation numbers for February earlier today. Data showed that consumer prices in Germany stagnated last month compared to a year ago, as falling energy prices dragged inflation down.
In the UK, the just released data showed a record widening in goods trade deficit for January. Other data showed that activity in the UK’s construction sector lost momentum at the start of this year.
Pound Sterling – UK Markets
The Pound gave up part of its previous session gains and is trading flat against the US Dollar after the just released official report showed that the UK’s goods trade deficit widened to a record in January. Britain’s trade deficit worsened at the start of 2016 as exports declined the most in more than six years. The shortfall between exports and imports continues to widen this year, sparking fears that the UK’s deteriorating trading position will be a drag on growth in the first quarter. Separately, the UK construction industry put up a weak performance at the onset of this year as output fell more than anticipated for January from a month ago, due to a slow rise in house building activity.
Going forward, investors will be closely following the UK employment data, scheduled for release next week, for further insight into the state of the economy ahead of next week’s Bank of England’s (BoE) monetary policy meeting. This meeting should attract market attention as a BoE policy-setter, Martin Weale, indicated this week that the central bank could embark on another round of quantitative easing.
US Dollar – US Markets
The US Dollar sharply dropped against the shared currency in yesterday’s trading session after the ECB's President, Mario Draghi, promised no further rate cuts at the press conference after the policy meeting. The ECB had earlier shocked markets by cutting rates across the board, but the President's comments later pushed the currency pair towards three week highs. Regarding economic news, greenback investors seemed to have ignored yesterday’s important labour market data which showed that the number of persons applying for first-time unemployment benefits in the US fell more than expected last week, to hit its lowest level since October 2015, signalling that the US jobs market continues to strengthen.
Currently, the greenback is trading on a stronger footing against the Euro, having partly recovered from its losses over the last few hours. There are no major economic releases scheduled in the US today. Moving ahead, next week’s retail sales and consumer price inflation data in the US will be closely followed by investors just before the Federal Reserve officials gather for its monetary policy meeting on 16 March.
Euro – European Markets
The Euro has trimmed part of its previous session’s sharp gains against the US Dollar this morning. Comments made yesterday by the ECB's President, Mario Draghi, that the central bank was unlikely to cut its interest rates further, pushed the currency pair above the 1.12 mark. Earlier yesterday, the ECB had surprised markets by delivering much more than expected to foster growth and inflation in the Euro area. Interest rates were slashed across the board and also the bank’s quantitative easing programme was expanded. But the ECB President’s comments in the post policy meeting press conference drove the Euro sharply higher against its major currency counterparts.
Looking at the macroeconomic prints that were published earlier today in the Euro region, official figures confirmed that there was a lack of price pressure in the German economy last month. On a harmonised basis, German consumer prices fell in line with the preliminary estimates for February compared to a year ago. The reading was down from a rise recorded in January. German CPI rose last month, on a monthly basis, while the headline prices were flat from the previous year.
Other Currencies – Highlights
The US Dollar - Canadian Dollar currency pair continues to trade lower today. The Canadian Dollar resumed its upward momentum against the greenback today, as oil prices slightly recovered. Yesterday, the Canadian currency had temporarily lost its footing against the US Dollar as oil prices dropped on news that the Oil Freeze Output Summit, that was supposed to take place at the end of this month, was off the table. Also, the Bank of Canada’s slightly net positive outlook on the economy in the central bank’s latest policy statement continues to lend support to the Canadian Dollar.
Today, Canada’s employment data which is scheduled for release later in the day will be crucial for the currency pair, as the US economic calendar is devoid of major economic releases. Canada’s unemployment rate is anticipated to remain unchanged in February, while the labour market is expected to have gradually picked up the pace of hiring last month following losses in January.