Central Bankers in a Hole

The week ahead is likely to be dominated by the meeting of central bankers in Jackson Hole, wherein the Fed Chairman and the ECB Chief are widely expected to shed some light on the prospects of further easing measures. Today’s consumer confidence and regional manufacturing data in the US are likely to provide further hints regarding the likelihood of QE3. Meanwhile, global economic worries have resurfaced after Japan lowered its economic assessment and this should keep a tight lid on high yield currencies in today’s session. With a light UK economic calendar during the week, comments from central bankers remain a key determinant for Sterling against the majors.

Pound Sterling – UK Markets

An upward revision to the UK’s second quarter GDP on Friday failed to spur hopes of a recovery in the British economy, as prevalent downside risks due to weak exports, a fall in investments and sluggish consumer spending continue to hamper growth prospects. Moreover, the assessment of the domestic service sector reinforces weakness in the overall economy, as a survey from CBI revealed that Britain's service sector shrank between June and August amid lack of demand. Worries on the housing front also failed to abate after Hometrack indicated that UK property prices fell for a second month for August. In the midst of weak economic prospects, the Pound fell marginally against the greenback in yesterday’s trading session. However, Sterling was mostly flat against the Euro as recessionary concerns in the UK were offset by weak business sentiment data from Germany. With a lack of domestic cues in today’s trading session, Sterling could be expected to closely monitor releases from the US for further direction.

US Dollar – US Markets

The US Dollar is trading mixed against its major peers in today’s trading session, as better than expected German consumer confidence data for September countered worries surrounding global economic growth prospects. Earlier today, Japan’s Cabinet Office lowered its assessment of the economy, hampering hopes of a revival in the second half of 2012. Meanwhile, dovish comments from the Cleveland and Chicago Fed Presidents have strengthened belief that certain members of the central bank still support a loose monetary policy stance, despite signs of improvement in the economy. This has increased the importance of the Jackson Hole Summit on Friday for further clarity over the immediate possibility of QE3. On the manufacturing front, the Dallas Fed’s manufacturing index climbed sharply, a stark contrast to the decline in the regional manufacturing indices for August released earlier. In today’s trading session, apart from consumer confidence data, the S&P’s house price index is expected to garner attention with regard to housing sector recovery.

Euro – European Markets

The Euro weakened marginally against the US Dollar in yesterday’s trading session amid prevalent concerns that the Eurozone debt crisis has hit core commercial sentiment, after data revealed that business confidence in Germany slipped to the lowest level since March 2010. Although the President of the Bundesbank continued to reiterate his opposition for a new program to purchase government bonds of individual countries, ECB board member, Joerg Asmussen, stated that the central bank would begin buying despite the German central bank’s opposition. In today’s trading session, the Euro is trading almost flat against the greenback, as worries over global economic growth offset data indicating that German consumer confidence remained unchanged for September, against market expectations of a decline. Today’s bond auction in Italy and Spain should remain a key focus in the midst of a looming possibility of an ECB intervention in bond markets.

Other Currencies – Highlights

The Japanese Yen is trading higher against its peers in today’s session, amid concerns over growth prospects of the global economy. In its monthly domestic review, Japan’s Cabinet Office downgraded its assessment of the nation's economy on account of soft global demand and weak consumer spending. Meanwhile, among key macro indicators, data revealed that Japan’s small business confidence declined for August. Markets are expected to closely follow economic releases from the US for further direction to risk appetite. The week ahead has a raft of key economic data that could have a meaningful impact on the Yen against the majors. The consumer price inflation data scheduled later this week is likely to indicate continued deflationary trend in the nation. Among other releases manufacturing, employment, retail sales and housing data will be keenly eyed to gauge the overall economic landscape in Japan.