King Anchors Sterling

Yesterday, Sterling reacted positively against the majors to the much awaited quarterly inflation report, as the BoE Governor rejected calls for lowering the benchmark interest rate. However, the BoE expects British economic growth to stall for 2012, as risks from Europe continue to cloud the domestic economic outlook. Today’s trade data substantiates the fact that a global slowdown on the back of the European debt crisis is impacting the UK economy. Meanwhile, further policy actions by the Chinese central bank remain as Chinese inflation eased and other domestic macro data continued to disappoint. The ECB’s monthly report and US trade and jobless claims figures are keenly anticipated.

Pound Sterling – UK Markets

The Pound posted decent gains against its major peers in yesterday’s trading session after the BoE Governor, Mervyn King, refrained from lowering the benchmark interest rate to 0.25% and warned that such a move would be "counter-productive". Although, he reiterated that the central bank would continue to assess whether to pump more stimulus into the economy, hopes of an immediate monetary boost dampened, after the central bank projected inflation to remain above its 2% target for a couple of years. On the growth front, the BoE forecast that the economy will barely grow this year and cut its projections for future years. Sterling has capitalised on yesterday’s gains against both the Euro and the US Dollar this morning. Data just out has indicated that trade deficit in the UK widened for June on account of continuing pressure from the debt crisis in the Eurozone. With no major macro releases scheduled today, markets are expected to closely track news flows emanating from Europe and the US for further direction.

US Dollar – US Markets

In yesterday’s trading session, the US Dollar strengthened against the Euro amid higher risk aversion after macro data from Germany suggested that the nation might register weak growth in the second quarter, prompting traders to stay cautious ahead of the next week’s German GDP data. The greenback is trading flat against the Euro in today’s session, as economic data from China failed to provide a clear direction for risk appetite. However, weak industrial production and retail sales data coupled with easing consumer price inflation has stirred optimism that the People's Bank of China might have enough room to maneuver on the monetary policy front. The economic releases in the US are expected to set the trend in the US Dollar against the majors in today’s trading session. Initial jobless claims report is expected to garner modest market attention, considering the change in sentiment following last week’s upbeat non-farm figures. Additionally, trade balance and wholesale inventories are other releases to watch out for in today’s session.

Euro – European Markets

The Euro has weakened against the Pound this morning, as the recent set of weak economic data from Germany has sparked a new wave of speculation that the German economy might fail to show signs of improvement, ahead of the GDP data due next week. Following dismal German export figures, industrial production data for June, revealed yesterday indicated a contraction. The raft of weak economic releases from China coupled with easing inflation has spurred hopes that the Chinese central bank might adopt further easing stance to revive the ailing economy. The ECB’s monthly report for June coupled with today’s economic releases from the US hold the key for setting the direction for the Euro against the majors.

Other Currencies – Highlights

The Australian Dollar has advanced against its major peers in today’s trading session after data revealed that nation’s unemployment rate declined for July, as the economy witnessed better than expected growth in hiring. Moreover, today’s Chinese macroeconomic data has further boosted hopes of monetary easing in China and provided some relief to the Australian Dollar against the majors. Market participants are keeping an eye on the Reserve Bank of Australia’s monetary policy statement slated for release tomorrow which is expected to provide more insights over the stance that the central bank plans to adopt in the near future.