DY: Euro Tips Higher as Economic Outlook Improves, British Pound Holds within Previous Day’s Range
The Euro advanced for the second day to reach a high of 1.3957 during the overnight trade, and the single-currency many continue to retrace the sharp decline from the previous week as the economic docket reinforces an enhanced outlook for future growth.
Euro Tips Higher as Economic Outlook Improves, British Pound Holds within Previous Day’s Range
The Euro advanced for the second day to reach a high of 1.3957 during the overnight trade, and the single-currency many continue to retrace the sharp decline from the previous week as the economic docket reinforces an enhanced outlook for future growth. Meanwhile, European Central Bank board member Vitor Constancio held a cautious outlook for the region during a speech in Lisbon and expects economic activity to remain subdued over the next few years due to the spillover effects of the financial crisis.
Retail spending in Germany increased 0.8% in December after contracting a revised 1.7% in the previous month, while the annualize rate slipped 2.5% for the second month, which was largely in-line with expectations. At the same time, producer price in the Euro-Zone increased 0.1% during the same period despite expectations for a flat reading, while price pressures weakened at an annual pace of 2.9% from the previous year amid forecasts for a 3.0% decline. As policy makers expect price pressures to remain subdued throughout the year and continue to see a risk for a protracted recovery, the ECB is widely anticipated to maintain its current policy this week, and the Governing Council is likely to hold a dovish outlook for future policy as they maintain their one and only mandate to ensure price stability.
The British Pound weakened against the greenback for the fourth day, but held within the previous day’s range to stay above the 1.5900 level, and we may see the exchange rate maintain the broad range carried over from December as investors weigh the prospects for a sustainable recovery in the U.K. Meanwhile, the economic docket showed construction fell at its slowest pace in nearly two-years, with the PMI reading increasing to 48.6 in January from 47.1 in the previous month, and conditions are likely to improve going forward as the housing market continues to recover. Nevertheless, the Bank of England is expected to hold the benchmark interest rate at the record low of 0.50% as the central bank aims to encourage a sustainable throughout the region, but market participants speculate the MPC to conclude its easing cycle this month as the economy emerges from its worst recession since the post-war period.
U.S. dollar price action was mixed across the board, with the USD/JPY advancing for the third day to reach a fresh weekly high of 90.92, and we may see the major currencies maintain its current range throughout the week as investors wait for the Non-Farm Payrolls report due out on Friday at 13:30 GMT. Meanwhile, pending home sales are forecasts to increase 1.0% in December after contracting at a record pace during in the previous month, and the data is likely to encourage an improved outlook for the world’s largest economy as private sector spending remains one of the leading drivers of growth. In addition, Treasury Secretary Timothy Geithner is scheduled to testify about the 2011 budget proposal in front on the Senate Finance Committee at 15:00 GMT, and Mr. Geithner is likely to face increased criticisms from the panel as the budget deficit is expected to hold around $1.3T in the following year.
