The pound enjoys a steadier day ahead of the GDP data release

Ahead of the key piece of UK economic data out this week when the Office for National Statistics (ONS) reports its second reading of the UK Gross Domestic Product (GDP) for the fourth and last quarter of 2013, the pound recovered some of yesterday’s losses against the majority of its key currency pairs.

The Bank of England have been busy of late with two of the nine members of its Monetary Policy Committee (MPC) giving seperate interviews yesterday. Firstly, Martin Weale stated that market expectations of a gradual increase in UK interest rates in the near and medium term seem reasonable although he was quick to stress that no guarantees can ever be given.

Weale went onto state that the timing and pace of rate rises may depend on whether wage growth picks up more rapidly than expected.

Fellow MPC member Ian McCafferty in a separate interview stated that in his opinion, market expectations for a first increase in the Bank of England's main policy rate since interest rates were cut to their historic low level of 0.5% in March 2009 towards the second quarter of 2015 were 'not unreasonable', while the probabilities of a move before or after that date were 'reasonably well balanced'.

Speaking to Reuters, McCafferty said that the exact timing would depend on how the recovery evolved over the next six to twelve months and that in his opinion, the main factor which would influence the timing of the first increase in the Bank rate was ‘inflation behaviour’ adding that wage settlements in 2014 would be “quite critical”.

Of particular interest to the currency markets as he is one of the first MPC members to make explicit comments about it, McCafferty went on to explain that the Bank of England also needed to watch the strength of sterling adding that a further increase in the value of sterling would be a worry and might lead the MPC to delay raising interest rates.

Meanwhile, in the US, house prices increased at a 0.8% seasonally adjusted month-on-month pace during December, according to the latest report on the sector.

FHFA Principal Economist Andrew Leventis commented that “Home price appreciation in the fourth quarter was considerable, but more modest than in recent periods. It is too early to know whether the lower quarterly growth rate represents the beginning of more normalized price appreciation patterns or a more significant slowdown”.

In further US economic news, the Conference Board’s consumer confidence index slipped from a reading of 79.4 in January to a reading of 78.1 in February, much lower than had been anticipated by analysts.

Lynn Franco, Director of Economic Indicators at The Conference Board commented that “Consumer confidence declined moderately in February, on concern over the short-term outlook for business conditions, jobs, and earnings”.

In the euro zone, the European Commission said it expects a mild recovery in the euro-area over the next two years according to its latest forecast, predicting that the euro-area will grow by 1.2% this year and 1.8% in 2015 after suffering two consecutive years of contraction.

The European Union's (EU) executive body also cut its inflation forecast for the euro after lower-than-expected price rises at the beginning of 2014.

The most recent projections on the euro zone have added to the pressure on the European Central Bank (ECB) to enact policies to boost the recovery in the bloc amid high unemployment and falling inflation.

ECB President Mario Draghi has recently indicated that the ECB will consider changing its policy settings at its March meeting following the release of more comprehensive data including its own economic forecasts.

Today’s report, however, noted that policy overhauls in the euro zone’s weaker economies are starting to bear fruit.