Markets tread water in anticipation of upcoming central bank rate decisions

Tom Tong06/Mar/2013Currency Updates

GBP

Sterling strengthened against the Euro on Tuesday following surprisingly positive data showing the service sector grew more strongly than expected in February. The Markit / CIPS Purchasing Managers Index (PMI) for services rose to 51.8 in February from 51.5 in January beating estimates of contraction to 51.0. Gains were also made against the dollar in early trade however they were short lived following a report showing services industries across the U.S expanded at the fastest pace in the last 12 months.

Gains made on Tuesday were always likely to be limited ahead of the Bank of England’s meeting on Thursday, as there is continued speculation monetary policy could be eased further. Today we are somewhat bereft of important economic data and therefore the focus will likely be on Mervyn Kings speech at 09:45am.

USD

The Dollar index ( the value of the dollar against a basket of currencies) rose to it’s highest level in six months, as reports showed service industries within the U.S expanded at there fastest pace in a year. This report shows clear signs of economic expansion and helped the dollar to pare back early morning losses against the pound and euro. With positive news from the service sector, speculation is beginning to mount that the Federal Reserve may soon have the capacity to reduce monetary stimulus earlier than projected.

The major stumbling block that faces the Federal Reserve in their attempts to scale down and phase out monetary stimulus, comes in the form of high unemployment across the U.S. Today we have the ADP employment figures released which are a precursor to the all important non farm payroll figures released on Friday and are currently anticipated to show a drop in the number of people employed in the non farm private sector by 22,000.

EUR

The Euro Zone composite PMI survey came in better then expected yesterday while retail trade figures also came in better then forecast. On the back of this the Euro reached sessions highs against the USD. However Euro gains were short lived as investors continue to keep tabs on this weeks ECB meeting where policŷ makers may cut interest rates. Furthermore, anaylsts remain unconvinced that the Euro can return to growth in the middle of the year solely on the back of Germany’s economic performance.

Today will see the release of revised GDP figures for the Euro Zone. No changes are expected but the figure will confirm that the Euro zone has entered its third quarter of recession.

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Written by Tom Tong

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