US Dollar Recovers Against the Euro
As some calm returned in the global markets earlier today, the US Dollar gained against the major currencies. In the session ahead, the greenback investors will eye the weekly update on mortgage applications in the US for further direction. Also, a series of Federal Reserve (Fed) officials’ speeches will continue along with the publication of the Fed’s Beige Book due later today.
The Pound will likely remain under pressure against the US Dollar as concerns about a referendum on Britain's future in Europe and revisions to Bank of England (BoE) rate rise expectations weigh on the currency pair in the coming days. The European docket is data light, with only the Euro zone industrial production data due for release in a short while.
Pound Sterling – UK Markets
The Pound lost ground across the board in yesterday’s trading session, with Sterling – US Dollar currency pair dropping below the 1.44 mark briefly. Yesterday, the pair exacerbated its decline after an economic report showed that UK industrial production slumped the most in nearly three years for November. Britain’s manufacturing industry also delivered a weaker than anticipated performance for November. The disappointing results are likely to have dented hopes that UK GDP growth picked up in the end of 2015. Meanwhile, the National Institute of Economic and Social Research (NIESR) forecasted healthy growth of 0.6% for the final three months of last year.
This morning, Sterling has recovered a little to trade higher against the US Dollar. However, the UK currency is likely to resume its downward trend as fears of the UK’s EU referendum looms large. Moving ahead, the UK central bank will tomorrow publish officials' latest policy decision. In light of the recent events, it would not come as a surprise if the BoE hints at further delaying the timing of the interest rate rise from a record low.
US Dollar – US Markets
The US Dollar has trimmed most of its losses against the shared currency and the Japanese Yen this morning, as the greenback remains resilient. Moreover, the US Dollar accumulated gains against the major currencies following optimistic comments by the US President, Barack Obama, on the US job market and the economy. Later in the day, the Fed's Beige Book is due for publication and market participants will also monitor speeches by some of the key US central bank monetary policy board officials for further insights about the pace of subsequent rise in interest rates.
Today, the US macro calendar offers only the weekly update on US mortgage applications in terms of economic news. Mortgage application volume had plunged in last week’s update, which was likely due to a surge in demand for home loans at the start of December before the Fed raised its benchmark interest rate for the first time in almost a decade. Investors will eye the latest weekly update to gauge mortgage demand in the New Year.
Euro – European Markets
The shared currency has softened against the US Dollar this morning. The mostly risk-off feel to the New Year has worked in favour of Euro, but today the trend seems to have shifted lower as the currency pair awaits fresh momentum in trading from the Euro zone’s industrial production figures scheduled in a short while. Earlier this month, industrial production numbers from Germany and France for November have already disappointed. Today’s update of the Euro zone’s industrial output could add to further weakness in the Euro against the major currencies, as markets anticipate a decline in production both for the month and for the year. If the Euro zone production declines further than expected for November, it would likely derail the view that the currency union is on the path of modest recovery.
Moving ahead, the publication of the European Central Bank minutes on Thursday could reignite discussions about the need of additional stimulus, especially in light of the latest weak inflation figures from the Euro zone.
Other Currencies – Highlights
Earlier today, the US Dollar – Japanese Yen currency pair set towards the path of recovery and has surged above the 118.00 mark. The gains initially came as the risk started to filter back through with the Chinese stock market rout’s dust settling. Adding to the optimism, Japan’s largest exporter, China, reported today that its exports exceeded market expectations for December compared to a year ago, while import volumes dipped. The better than expected China’s trade data brought in a wave of hope that world trade flows could be stabilizing after a dismal 2015. Also, it suggested that the PBOC might be successful in stabilizing the Yuan amid easing fears of a sustained devaluation. With safe haven suddenly out of favour, the Japanese Yen slipped lower against the greenback today.
In economic news, market participants will keep a tab on Japan’s machinery orders scheduled for release later in the day for further direction. However, the broader market sentiment will most likely continue to influence trading in the currency pair.