US Data Provides a Fillip

The initial disappointment over the ECB's failure to act at its policy meeting faded on Friday, as stronger than expected US non-farm payrolls data prompted traders to move towards high yield currencies. The Pound and the Euro seem to have taken a breather this morning and keenly await the speech by the US Fed Chairman later today to gauge the prospects of QE3. Back at home, data released earlier today indicated poor housing market scenario in the UK. Against the backdrop of deteriorating economic conditions, the BoE is expected to paint a gloomy picture of the economy by lowering its growth forecast in its inflation report due later this week.

Pound Sterling – UK Markets

On Friday, the Pound slipped against the Euro after data revealed that Britain’s services PMI unexpectedly declined for July, casting doubts whether the economy can rebound after three straight quarters of contraction. Reflecting the weakness in the current economic conditions, the BoE in its Quarterly Inflation Report due later this week is expected to slash its growth and inflation forecast for the current year. However, Sterling strengthened against the US Dollar amid higher risk appetite following robust US non-farm payrolls data. Meanwhile, Sterling has begun this week’s trading session on a weak note, as data from Halifax revealed that house prices in the UK continued to slide for July, confirming the recent weakness observed in the off-take of mortgage loans. However, the labour market continued to offer encouraging signs, as the Lloyds employment confidence index improved for July. In today’s trading session, the Pound is expected to track the prevalent market risk sentiment and the BRC’s retail sales data towards the end of today’s session is expected to provide further hints to Sterling against the majors.

US Dollar – US Markets

The US Dollar retreated against its major peers in Friday’s trading session, on hopes that the US job market is once again showing signs of a revival as the private sector hired 163,000 workers for July, boosting market appetite for riskier assets. Moreover, the service sector in the US sprang a surprise, as the ISM revealed that its non-manufacturing index in the US unexpectedly climbed for July. In today’s trading session, the greenback has bounced back from its Friday’s lows on higher risk aversion among investors. Additionally, data earlier today revealed that the Eurozone’s investor confidence deteriorated for August. With no major macro releases scheduled for today, market participants are expected to closely follow the Fed Chairman, Ben S. Bernanke’s comments for more insights over the stance that the central bank plans to adopt in the future. Against the backdrop of a light domestic economic calendar during the week, market participants are expected to remain focused on the deluge of data from China for further direction to risk appetite.

Euro – European Markets

In Friday’s trading session, the Euro rallied sharply against its major peers, as positive private payrolls data from the US sparked a relief rally among high yield currencies. However, the Euro has retreated against the US Dollar this morning, as data released earlier today confirmed that the ECB’s recent hints to revive its bond purchase plan had minimal impact on investor confidence. Moreover, traders have adopted a cautious stance ahead of the Italian second quarter GDP and German factory orders data scheduled for release tomorrow. Meanwhile, reports indicated that the Troika sees progress in Greece to impose necessary budget cuts needed to continue its bailout programme, though it will announce its final verdict in September. During the course of the week, the German trade data and the ECB’s monthly report are expected to influence the movement in the Euro against the majors.

Other Currencies – Highlights

The Japanese Yen has edged higher against most of the major currencies in today’s trading session, as traders turned cautious after data pointed out that investor sentiment in the Eurozone continued to remain weak despite strengthening hopes that the ECB might revive its bond buying programme. Moreover, data slated for release tomorrow is expected to reveal that the Italian economy continued to languish, confirming the severe impact of the austerity cuts undertaken by the nation. Meanwhile, data released earlier today revealed that Japan’s leading and coincident indices fell more than expected for June. This has turned focus on to this week’s interest rate decision of the Bank of Japan. Additionally, Japanese trade balance and industrial production data due later this week are expected to provide further direction to the Yen against the majors.