Europe Hogs the Spotlight

The disappointing US non-farm payrolls report on Friday highlighted the fact that the US economy is sailing through troubled waters and led traders to seek shelter in the US Dollar. This has raised speculation that the Federal Reserve might resort to quantitative easing to tackle the situation. Market focus today rests on the European finance ministers meeting where more clarity on the measures undertaken at the EU Summit is sought. The ECB President’s testimony to the European parliament later today will also be eyed for the rationale behind last week’s monetary policy stance. At home, traders stay braced for tomorrow’s crucial industrial and manufacturing production data.

Pound Sterling – UK Markets

Sterling was on the back foot against the US Dollar in Friday’s trading session as market sentiment was dented following a lackluster US non-farm payrolls report for June. Additionally, persistent concerns over the European debt crisis continued to favour the Pound against the Euro. This morning Sterling is trading in a narrow range against the majors. This morning Lloyds Bank reported that its employment confidence index rose for June. This should provide some respite to the BoE which last week resorted to additional asset purchases to prop up the economy. However, highlighting weakness in the banking sector, the UK Business Secretary, Vince Cable, warned that banks are "throttling" the recovery of the nation’s economy due to inadequate credit expansion. With no major economic releases on tap, the EU finance ministers meeting today and other developments in the Eurozone are likely to govern the movement in Sterling against the majors. Additionally, domestic industrial and manufacturing data scheduled for release tomorrow will also be keenly eyed.

US Dollar – US Markets

A slower than expected growth in US non-farm payrolls for June resulted in traders moving towards safe haven assets and aided the US Dollar to post decent gains against both the Pound and the Euro in the previous trading session. The US economy added 80,000 jobs for June, lower than market expectations for an addition of 100,000 jobs. Following the dismal jobs data, remarks by top Fed officials over the next few trading sessions about the prospects of a QE3 will be keenly watched. However, the greenback is trading range bound against its major counterparts. Market hopes of further quantitative easing received a boost after Boston Fed President, Eric Rosengren, warned that a dwindling US labour market hinted at further weakness in consumer spending in the long run. The dismal outlook thus puts the spotlight on the minutes of the Federal Reserve’s monetary policy meeting slated later this week for more cues on further easing prospects. Among the economic releases due today, consumer spending data is likely to garner tepid market interest.

Euro – European Markets

On Friday, the Euro was under pressure against its major counterparts amid ongoing concerns about the European debt crisis. Additionally, softer-than-expected job additions in the US for June led investors to shun high yield currencies. However, the Euro has strengthened marginally against the US Dollar this morning after data indicated that German trade surplus widened for May. Moreover, concerns about the health of peripheral economies receded after the German finance minister, Wolfgang Schaeuble, affirmed that the Spanish debt load was manageable while Greece's new coalition government won a vote of confidence early today. Other data released earlier today revealed that the Sentix investor confidence in the Eurozone has deteriorated for July. Against the backdrop of a positive EU summit, focus today rests on the Eurogroup finance ministers meeting today which is likely to provide clarity on measures undertaken at the EU Summit. Additionally, the ECB President, Mario Draghi’s testimony before the European parliament and the outcome of the French bond auction will be closely watched.

Other Currencies – Highlights

The Aussie Dollar has weakened against the US Dollar this morning amid subdued risk appetite following dismal data across the Atlantic and Japan. Moreover, the currency was under pressure after the Chinese Premier, Wen Jiabao, warned that downward pressure on the Chinese economy is still “relatively large”, partially explaining the rationale behind last week’s rate cut by China. A raft of Australian economic data this week including consumer confidence indices and inflation expectations are keenly awaited by investors. Additionally, crucial releases from China such as GDP, industrial production and trade balance are also expected to provide direction to the Aussie Dollar against the majors. For the session ahead, the European finance ministers meeting and news flow emanating from the Eurozone are set to influence the risk tone.