Retail Data Raises Hopes of UK GDP Revision‎

Key meetings of European leaders lined up during the week remain a determinant for market risk appetite. Recent reports have indicated that the ECB is planning to limit borrowing costs in peripheral nations up to a pre-determined level. The Greek Prime Minister, in his meeting with Franco-German counterparts, is likely to press hard for an extension of the budget cuts deadline set by Troika. With an upward revision to UK retail sales for June, traders are hopeful that this week’s revised GDP estimates could show a slight improvement. With the latest US macro indicators reducing the prospects of QE3, minutes of the Fed’s last meeting due later this week will be keenly eyed.

Pound Sterling – UK Markets

The Pound is trading marginally lower against the Euro this morning after data from Rightmove indicated that monthly house prices in the UK continued to drop for August. However, markets remain hopeful that the UK’s second quarter GDP due later this week might be revised upwards from a 0.7% quarterly contraction, based on a significant upward revision to June retail sales numbers released last week. Meanwhile, prospects of further asset purchases by the BoE appear bleak following last week’s above-forecast UK jobs data and an unexpected rise in consumer price inflation. Apart from the GDP data, markets are also expected to closely monitor government borrowing data scheduled for release tomorrow, as traders remain doubtful of the British government meeting its fiscal targets. With little in store on the domestic macro front, markets are expected to look forward to cues from the Eurozone and the US for further direction to Sterling against the majors in today’s trading session.

US Dollar – US Markets

The greenback moved higher against its major peers in Friday’s trading session, as an unexpected rise in US consumer sentiment for the current month strengthened hopes that the Fed might prolong implementing fresh easing measures. However, the US Dollar has failed to hold on to its previous session gains, after reports indicated that the ECB is considering setting yield thresholds for bonds of peripheral nations. Minutes of the US Fed’s latest monetary policy meeting due later this week hold relevance, as recent economic indicators have failed to offer a convincing picture over the stance that the central bank might adopt in its next monetary policy meeting. Against the backdrop of the recent weakness observed in regional manufacturing indices, the Chicago Fed’s national activity index due later today is likely to be closely tracked for more insights on the manufacturing front.

Euro – European Markets

The Euro has begun this week’s trading session on a positive note against the majors, as reports indicated that the ECB is mulling over plans to ensure that borrowing costs do not spiral beyond a pre-determined level in the peripheral nations. The Spanish Economy Minister, Luis de Guindos, urged the ECB to come up with forceful and unlimited steps to counter the recent spike in the nation’s borrowing costs. Meanwhile, the outcome of meetings between key Eurozone policymakers this week is expected to chart the course of action that leaders might undertake to deal with the debt crisis. However, traders will tread cautiously ahead of the release of key manufacturing and services PMIs across the Eurozone later this week. Moreover, clarity on Greece’s fate is expected to emerge, as the nation’s policymakers prepare for a week of crucial meetings with European leaders. Market participants will be focused on the Eurozone’s construction output scheduled for release today.

Other Currencies – Highlights

The Japanese Yen has declined against high yield currencies in today’s trading session, as risk appetite amongst investors grew after reports indicated that the ECB is formulating measures to cap the borrowing costs for the peripheral nations in the Eurozone. Moreover, markets have turned optimistic that European policymakers might come up with some set of measures in its key meetings this week to tackle the region’s debt crisis. Meanwhile, on the macro front, convenience store sales in Japan continued to slide for July while leading and coincident indices for June were revised higher. Apart from tomorrow’s trade data, the Cabinet Office monthly report and the BoJ Governor’s press conference on Friday are expected to play a critical role in setting the trend for the Japanese Yen against the majors.