Market Anticipates BOE and ECB Decisions

Domestic data indicating deterioration in the services sector activity for June, which was much in line with the reports released earlier this week showing contraction in both manufacturing and construction sector activities, have just added fuel to the fire. The case for the BoE to change its policy stance by announcing additional asset purchases at tomorrow’s rate setting meeting remains strong. In Europe service sector data released earlier today has confirmed contraction in the Eurozone. A raft of dire macro releases has provided room for the ECB to back the summit deal with an interest rate cut tomorrow. Markets remain closed across the Atlantic for the Independence Day holiday.

Pound Sterling – UK Markets

Sterling traded in a tight range against the US Dollar while it moved marginally lower against the Euro in yesterday’s trading session. Data indicating a sharp decline in construction sector activity for June, coupled with a fall in the mortgage approvals for May, has strengthened market speculation of further stimulus from the BoE. In today’s trading session, the Pound has weakened against the US Dollar while it is relatively steady against the Euro. Data just out indicates that services sector activity in the UK expanded at a slower pace for June. Earlier this morning, the BRC reported that the British shop price inflation for June eased to the lowest level since 2009, primarily due to lower crude oil prices, weak demand and aggressive competition. With little in terms of market moving macro releases today, investors turn their focus to the BoE’s monetary policy meeting tomorrow, with expectations high for an addition to the asset purchase programme.

US Dollar – US Markets

The US Dollar moved lower against the Euro yesterday after the IMF slashed its 2012 US economic growth forecast to 2% from the previously estimated 2.1% growth and warned of a potential recession in absence of a deficit reduction deal by lawmakers. Domestic data portrayed a mixed picture yesterday with data indicating a better than expected rebound in factory orders for May and a decline in the ISM New York business activity index for June. However, the greenback has strengthened against both the Euro and Sterling this morning on lower risk appetite among investors due to persistent concerns over the dire situation in the Eurozone. With no major US economic releases scheduled for the session on account of a public holiday, markets await jobs data for the next two consecutive days for further insights on the employment scenario in the nation.

Euro – European Markets

The Euro traded with an upward bias against the majors yesterday after the Netherlands eventually voted in favour of the establishment of the European Stability Mechanism. Further, in a move to allay jitters, the European Council President, Herman van Rompuy, defended the summit decisions citing the meeting as “fruitful”. However, the common currency has pared its previous session gains and is headed south against the US Dollar in today’s trading session after data released earlier today confirmed that services PMI in the Eurozone remained in a contraction phase for June, raising speculation of an interest rate cut at the ECB monetary policy meeting due tomorrow. However, IMF Chief Christine Lagarde, reiterated that although the ECB has room to lower rates, bond buying appears to be the preferable approach. Amongst other economic releases, market participants await the Eurozone retail sales data later today which is likely to show a rebound for May. Additionally, markets look forward to Austria’s ratification of the bailout fund later today, while the outcome of the Merkel - Monti meeting is expected.

Other Currencies – Highlights

The Canadian Dollar advanced against the US Dollar yesterday after data showed that Canadian manufacturing PMI, as measured by Royal Bank of Canada, climbed to a nine month high for June on the back of strong growth in new orders. Additionally, speculation over further stimulus by global central banks and a surge in crude oil prices, Canada’s largest export commodity, aided the Canadian Dollar to consolidate gains against the US Dollar. However, the currency has weakened against the greenback in today’s trading session as muted risk appetite prevalent in the market sapped out demand from riskier assets. Among the crucial macro releases slated later this week, markets await the jobless rate data which is expected to remain unchanged for June. Additionally, the Ivey PMI and building permits data are also likely to be keenly tracked by investors to gauge the overall economic landscape in the nation.