UK Economy Going for Gold

The prevalent gloom surrounding the British economy seems to have subsided for a while as the recent economic releases offered respite to the deteriorating domestic economic outlook. Data out today has revealed that retail sales grew more than expected last month due to the Olympics games adding to the improving labour market scenario. Although the BoE minutes showed that policymakers did not discuss an interest rate cut, stepping up the bank's asset purchase programme did play on their minds. Yesterday’s positive US housing and industrial output data has dampened hopes of QE3 though muted inflation figures did support more easing.

Pound Sterling – UK Markets

The underlying economic conditions in the UK are showing signs of improvement with the suggestion that the London Olympics played a critical role in reviving economic growth. Data just released has indicated that retail sales in Britain continued to grow at a faster pace for July. The Pound was trading lower against both the Euro and the US Dollar in the early session and has moved sharply higher following better retail sales data. Yesterday, the jobs data offered a glimmer of hope that the British economy is reviving as the number of people claiming jobless benefits declined while the unemployment rate unexpectedly slipped to 8%, boosted by job additions during the Olympics. Meanwhile, the BoE’s minutes reaffirmed the Governor’s recent comments, as an interest rate cut did not feature in the last monetary policy meeting. However, the option of increasing the central bank’s asset purchase programme in the future weighed on their minds.

US Dollar – US Markets

Strong US industrial output data yesterday which followed similar robust retail sales and employment data for July released earlier this month has dented hopes that the Fed would resort to fresh easing measures in the near future. Data released yesterday showed that US industrial output rose in July while the home builder sentiment in August hit its highest level in more than five years, strengthening belief that the a new round of QE might remain elusive. Fading QE3 hopes has continued to offer support to the US Dollar against the majors in today’s trading session. However, all options for the Fed remain open, as the US consumer price inflation has fallen well below the central bank’s target rate of 2%. Moreover, a sharp fall in the New York’s manufacturing index warrants a note of caution. In today’s trading session, traders have their plate full with the US building permits, weekly jobless claims and the Philadelphia Federal Reserve’s business activity survey on tap which is likely offer more clarity on the Fed’s stance at its next monetary policy meeting.

Euro – European Markets

Early gains in the Euro yesterday quickly evaporated after data from the US indicated that the underlying economic conditions may not warrant a fresh round of stimulus from the Fed. Moreover, the Greek Prime Minister, Antonis Samaras, is expected to hold his first meeting with the Eurozone leaders since taking office, aiming to assure them that he would honour a pledge for more austerity while seeking more time for implementing it. Lack of clarity on the German stance over extending Greece’s austerity measures remains a cause of worry. The common currency has continued to lose ground against the US Dollar this morning amid fading hopes of QE3 in the US. However, the Chinese Premier, Wen Jiabao, has rekindled hopes of easing by indicating that cooling inflation has provided more room to the central bank to alter interest rates. With the final Eurozone consumer price inflation data being the only economic indicator on tap in today’s trading session, market participants keenly await a raft of macro data from the US later today, given the uncertainty over the prospect of the Fed embracing fresh easing measures.

Other Currencies – Highlights

The New Zealand Dollar has declined against the US Dollar this morning, as risk aversion drove traders to seek shelter in safe haven currencies. Moreover, New Zealand’s manufacturing activity shrank last month, according to the latest performance of manufacturing index reading. The producer price data slated for release in the latter half of today’s trading session is expected to provide further insights over the price trend in the domestic economy. However, losses in the Kiwi Dollar were limited, as comments from the Chinese Premier, Wen Jiabao, offered hope that an additional rate cut by the central bank remains in the offing. The crucial set of economic releases from the US scheduled for today’s session holds the key for setting the direction of the Kiwi Dollar against the major.