Global Liquidity Boost on the Horizon

The positivity surrounding the measures undertaken at the EU Summit fizzled out as Finland and the Netherlands opposed the EU plan to use the region’s permanent bailout fund to buy sovereign bonds in the secondary market. Additionally, data indicating a contraction in manufacturing activities in Europe and the US has provided food for thought for both the ECB and the Federal Reserve to take additional steps to boost their economies. With an economic calendar on the light side, markets are likely to trade in a tight range in today’s trading session. In the UK, construction sector activity has deteriorated for June, supporting the case for QE at the BoE meeting later this week.

Pound Sterling – UK Markets

Resistance to the EU’s financial aid plan revived concerns over the Eurozone debt crisis and favoured the Pound against the Euro in yesterday’s trading session. Moreover, a better-than-expected improvement in domestic manufacturing activity for June also led Sterling to consolidate gains against the Euro, though it does little to alter the case for further asset purchases at this week’s BoE monetary policy meeting. The Pound is holding almost steady against both the Euro and the US Dollar this morning. Raising concerns about the domestic economy, the British Chamber of Commerce has warned that the nation’s economic growth faces major challenges and is too weak to be sustainable. Data just out revealed that construction PMI declined more than expected for June, raising questions about the strength of the economy in the second quarter. With little on the domestic economic calendar, Sterling is expected to be range bound against the majors in today’s trading session.

US Dollar – US Markets

The US Dollar edged higher against the Euro yesterday as optimism following last week’s EU summit gradually receded. Meanwhile, the ISM data indicating an unexpected contraction in the US manufacturing sector for June has strengthened speculation of further quantitative easing by the Federal Reserve. In this trading session, the US Dollar is trading flat against both the Pound and the Euro. Meanwhile, San Francisco Fed President, John Williams, indicated that the central bank is prepared to tighten the ultra-easy monetary policy, when required, to control inflationary pressures. Against the backdrop of dismal manufacturing data released yesterday, market participants are set to closely track today’s factory orders report, which is likely to show a rebound for May. The ISM New York business conditions index for June is also on tap later today. Domestic macro releases and news flow emanating from Europe are likely to provide some direction to the US Dollar in this trading session.

Euro – European Markets

Joint opposition by Finland and the Netherlands to use the permanent European bailout fund for buying government bonds in the secondary market weighed on the Euro against the majors in yesterday’s trading session. Additionally, data indicating a rise in the Eurozone unemployment rate to a record high for May, coupled with continued contraction in manufacturing activities across major European economies, spurred speculation over further easing by the ECB. In today’s trading session, the Euro is holding well against its major counterparts. Data released earlier today indicated that Spanish jobless claims posted a record drop for June. In a significant development yesterday, Greece received the remaining payment of €1 billion from the latest EU bailout. On the macro front, markets await the Eurozone producer price inflation data for May though it is unlikely to have a significant impact on the Euro.

Other Currencies – Highlights

The Aussie Dollar has strengthened against the US Dollar in today’s trading session after the Reserve Bank of Australia (RBA) kept its benchmark interest rate steady at 3.5%, citing stronger than expected pace of growth in the domestic economy. Substantiating the decision, data released earlier today indicated a rebound in Australian building permits for May. Moreover, yesterday’s data also revealed an improvement in the nation’s manufacturing sector activity for June. Encouraging Chinese manufacturing and services PMI released this week have provided some relief to the Australian economy. However, the RBA Governor, Glenn Stevens, cautioned that European woes continue to be a source of potential shocks. The construction and service PMIs, retail sales and trade balance are among the crucial economic releases featuring this week, which may likely affect the movement in the Australian Dollar against the majors.