UK Breathes Out a Little

Data today highlighted that the contraction in Britain’s second quarter GDP was not as severe as earlier feared. However, disappointing results from CBI’s survey yesterday have led to questions surrounding the sustainability of recent strength in the retail sector. Traders seem to have scaled back their expectations for a fresh stimulus in the US, after a Fed policymaker opined that recent economic strength has hampered the prospects of the central bank using easing tools in the near future. Durable goods orders and the meeting between Eurozone leaders hold significance in today’s session.

Pound Sterling – UK Markets

Sterling is trading flat against the Euro. Data released just a while ago reveals that second quarter economic contraction in the UK was not as deep as earlier feared, reflecting the recent upward revision to retail sales, construction and industrial output figures. However, sustainability of recovery in Britain’s retail sector remains under threat, with the latest survey from the CBI pointing out that the nation’s retailers reported an unexpected drop in sales for August. This led the Pound to slip against its peers in yesterday’s session. Meanwhile, BBA indicated that mortgage approvals recovered marginally from its multi-year lows. Hopes of an immediate increase to the BoE asset purchase programme have dampened, after the central bank’s policymaker, Martin Weale, indicated that the BoE should refrain from extending asset purchases at the current stage. With UK GDP data out, markets are now expected to stay focussed on today’s durable goods data from the US for further direction.

US Dollar – US Markets

The US Dollar has stemmed yesterday’s losses in today’s session, after St. Louis Fed President, James Bullard, stated that the positive set of economic indicators in August have softened calls for QE3. Bullard’s comments have poured cold water on buoyancy in risk assets that followed the release of dovish minutes of the Fed’s latest monetary policy meeting. Economic releases continue to indicate that the US housing market remains on the path of recovery, with data released yesterday revealing an improvement in house prices for June and a recovery in new home sales for July. However, applications for US unemployment benefit rose for a second week, thereby confirming the widely held belief that the nation’s labour market is still not out of the woods. The US Dollar declined against the Euro yesterday, following positive manufacturing PMI data from the Eurozone. Meanwhile, durable goods orders data slated for release later today is likely to provide cues to the possible monetary stance of the Fed at its annual symposium at Jackson Hole next week. US second quarter GDP and regional manufacturing indices are the key releases to watch out for next week.

Euro – European Markets

The Euro is trading a tad lower against the US Dollar in today’s session as prospects of Eurozone leaders’ easing bailout conditions for Greece took a hit, after Germany and France indicated that Greece would not be provided much leeway in its bailout agreement unless it adheres to reform targets. Further clarity is expected to emerge from Greek Prime Minister, Antonis Samaras’s meeting with the German Chancellor, Angela Merkel later today. Meanwhile, reports have emerged that Spain is negotiating with the Eurozone over conditions for a fresh aid package. The Euro climbed against its peers yesterday, after latest PMI figures showed some signs of improvement in the Eurozone’s manufacturing sector, even as the region’s consumer confidence slipped more than expected for August. Next week CPI, unemployment and German retail sales data are key indicators to watch out for ahead of the ECB’s monetary policy meeting early next month.

Other Currencies – Highlights

The Aussie Dollar declined sharply against its peers in today’s session, after the Reserve Bank of Australia Governor, Glenn Stevens, expressed his surprise over the resilience in the domestic currency, despite lower commodity prices and a slowing global economy. However, he ruled out the possibility of a large scale intervention in the currency markets in order to curtail the appreciation in the AUD. On the macro front, data revealed that the Australian leading index climbed 0.2% for June, compared to a 0.3% rise in the previous month. Meanwhile, fading expectations for QE3 in the US also weighed on high yield currencies. Disappointing economic releases from China have hampered growth prospects for the Aussie economy, with data today showing deterioration in Chinese business sentiment for August. With risk sentiment likely to remain muted in today’s session, sentiment towards the Aussie is unlikely to witness an improvement in this session.