Germany Bucks the Trend

GDP data across Europe released earlier today offered a ray of light over growth figures from core Eurozone nations, although they are still fairly anaemic. With a better than expected performance by Germany and France narrowly avoiding a minus figure, markets have become hopeful that the Eurozone GDP reading later today might have some surprises in store. Back at home, consumer price inflation unexpectedly climbed for July. However, dire domestic economic conditions have reaffirmed market belief that the BoE might consider additional monetary tools to combat concerns engulfing the British economy. Today’s US retail sales data also holds high relevance due to its influence on the Fed’s monetary stance.

Pound Sterling – UK Markets

The Pound has declined against the Euro in today’s trading session following positive quarterly GDP numbers from Germany and France. Meanwhile, consumer price inflation in the UK showed a surprise rise, with the index inching higher for July. On the housing front, RICS earlier today indicated that its property price balance fell for July, reinforcing a generally gloomy picture of the British economy and highlighting recent weakness observed in demand for mortgage loans. The worrying economic outlook prompted MPC member, Adam Posen, to urge the BoE to go beyond buying government bonds and consider purchasing private assets in order to counter recessionary pressures. With no major domestic macro releases scheduled during the day, the Eurozone GDP figures and key economic releases from the US are expected to drive risk sentiment in today’s trading session.

US Dollar – US Markets

The US Dollar weakened against its major peers yesterday, as risk appetite among traders grew following successful Italian bond auctions. The trend has continued this morning with the greenback trading under pressure against both the Pound and the Euro, after German and the French GDP data released earlier today indicated that economic activity in both nations continued to grow, albeit at a slower pace. Meanwhile, markets await key US economic releases during the course of the day for further insights over the stance that the Fed might adopt during the course of the year. In today’s trading session markets are closely eyeing retail sales data that is expected to reveal a recovery for July, while producer price inflation data is expected to provide details with regard to the recent trend in input prices. Moreover, Eurozone GDP data is expected to garner attention following positive growth figures from the core nations.

Euro – European Markets

The Euro has continued its upward momentum against the US Dollar and Sterling this morning after German and French GDP growth surpassed market estimates. The positive GDP data fed into optimism that core Eurozone nations have remained resilient, though risks from the debt crisis continue to cloud the region’s economic outlook. With Greece’s economy shrinking at a slower than expected pace and in the midst of positive growth figures from the key Eurozone nations, markets remain hopeful that the region’s GDP data scheduled for release later today might not be as weak as earlier feared. Meanwhile, Italy managed to sail through its bond auction unscathed with its borrowing costs rising marginally, as markets remained focused on the prospect of the ECB intervening in the bond markets. Following the release of the Eurozone’s GDP data, macro releases from the US are likely to take centre stage later in the session, as retail sales figures for July could offer an important update on how consumer demand fared in the initial phase of the third quarter.

Other Currencies – Highlights

The Kiwi Dollar has advanced against its major counterparts in today’s trading session after data revealed that retail sales in New Zealand grew at a better than expected pace for the three months through June. Moreover, risk sentiment among market participants grew as data revealed that the German and French economies escaped a contraction. However, gains in the Kiwi Dollar remain vulnerable to the Eurozone GDP data and US retail sales figures due for release later. Meanwhile, New Zealand’s manufacturing activity and producer price inflation data slated for release during the week is expected to garner some attention for further hints on the domestic front.