Doves in Fed Take Charge

The dovish minutes of the Fed’s last policy meeting has once again sparked hopes that the central bank may not shy away from QE3, triggering a wave of optimism in the broader market sentiment. However, speculation of an ECB intervention has ebbed following decent improvement in manufacturing PMIs of key European nations released earlier today. Though the Eurogroup chief assured one final chance to Greece to meet its bailout conditions, the German Chancellor insisted that a final decision should be delivered after the Troika’s report. At home, traders keenly await tomorrow’s UK GDP data for some positive signals, as this week’s economic indicators have offered little reason to cheer.

Pound Sterling – UK Markets

The Pound has managed to post gains against the US Dollar, as data from BBA just out revealed that loans for house purchases has recovered from its multi-year lows. However, robust manufacturing PMI across Europe has weighed on Sterling against the Euro. The minutes of the Fed’s latest monetary policy meeting has once again revived hopes of further stimulus for the US economy, aiding Sterling to cross its three month high against the US Dollar in yesterday’s trading session. However, the possibility of the BoE using additional monetary easing measures remains on the radar, as the central bank’s policymaker, Adam Posen, opined that the UK’s economic growth is stagnating and warned that conditions could further worsen, if the situation in the Eurozone deteriorates. Tomorrow’s revised second quarter GDP data is expected offer more clarity on this front. For the day ahead, markets are expected to pay modest attention to CBI’s reported sales survey and set sights on the GDP data tomorrow.

US Dollar – US Markets

The minutes of the Fed’s latest monetary policy meeting weighed on the performance of the US Dollar against the majors in yesterday’s session. The minutes revealed that many of the central bank’s policymakers were of the opinion that more easing measures are required to support the flagging US economy. The dovish sentiment was echoed in the Chicago Fed President, Charles Evans, comments earlier today wherein he reiterated his stance for additional measures to revive the economy, as the recent uptick in employment data was not good enough. The US Dollar has continued yesterday’s dismal performance against its major counterparts on persistent QE3 chatter and robust manufacturing PMI data from Germany and France. Meanwhile, the housing market in the US continued to offer reasons to cheer following a recovery in existing home sales for July. With key European PMI readings revealed, market participants are expected to stay focused on jobless claims and new home sales data from the US later today for fresh insights on the stance that the Fed Chairman, Ben Bernanke, might adopt at Jackson Hole next week.

Euro – European Markets

Yesterday, the Euro posted decent gains against the greenback following dovish FOMC minutes. Although the Luxembourg Prime Minister, Jean-Claude Juncker, offered no hints on a change of strategy in dealing with austerity measures, he managed to soothe worries by indicating that Greece would be given “one last chance” to meet its bailout conditions. However, the German Chancellor, Angela Merkel, indicated that Troika’s report on Greece’s fiscal situation would be awaited before the leaders arrive at their final decision. The Euro has continued its uptrend against the US Dollar in today’s trading session after data revealed that the German and the French manufacturing PMIs improved for August, starkly in contrast to the weak Chinese manufacturing data released earlier today. With the latest set of manufacturing PMIs showing signs of improvement, markets are expected to take cues from the Eurozone consumer confidence data scheduled for release later today. Meanwhile, the Franco-German meeting scheduled later today is also on market radar wherein the leaders are expected to formulate plans to deal with the Eurozone debt crisis.

Other Currencies – Highlights

The Canadian Dollar is trading higher against the US Dollar this morning after the Bank of Canada Governor, Mark Carney, reiterated his stance of hiking interest rates, by stating that it might be appropriate to remove some of the monetary stimulus that is currently in place for Canada. Moreover, the Canadian Dollar benefitted from higher risk appetite among traders following yesterday’s dovish FOMC minutes, which has sparked a fresh round of optimism that QE3 remains in the offing. The improvement in manufacturing activity across Europe has also prompted market participants to move towards high yield currencies. On the economic front, data released yesterday revealed an unexpected fall in Canadian retail sales for June. With no major economic releases in sight for this week, the Canadian Dollar is expected to track economic indicators from the US and key events from the Eurozone for further direction.