UK Surprises on the Upside

Following the recent set of weak PMIs in the UK, today’s industrial production data has indicated an unexpected monthly rise for May. To add to the optimism, the British trade figures have provided some comfort as the nation’s trade deficit narrowed, surpassing market estimates. In Europe, market optimism following the EU summit was tempered, as the ongoing Eurozone finance ministers meeting yielded little except the disbursement of a €30 billion aid package to Spain. Across the Atlantic, with more Fed policy makers joining the chorus for more QE, the minutes of the Fed’s monetary policy meeting due tomorrow is expected to offer more clarity.

Pound Sterling – UK Markets

This morning, Sterling has moved higher against the greenback after data just released revealed that industrial production in the UK unexpectedly rose for May. Additionally, data indicating a narrower trade deficit supported gains in Sterling. However, the Pound is trading in a tight range against the Euro this morning as concerns over the health of the British economy were offset by a dearth of positive signals from the Eurozone finance ministers meeting. Meanwhile, the BRC revealed that like-for-like retail sales in the UK grew at the fastest annual pace since December 2011. Fear among consumers over the health of the UK economy seemed evident, as growth in retail sales fell short of market estimates despite the Diamond Jubilee celebrations. To add to the woes, the OECD has warned that Britain's economy will continue to face hardships for the foreseeable future. Additionally, data from RICS released earlier today revealed that house prices in the UK declined for June. The NIESR GDP estimate, scheduled later today, is expected to throw light on the performance of the economy in the second quarter and provide direction for Sterling against the majors.

US Dollar – US Markets

The US Dollar was volatile against the Euro in yesterday’s trading session, while it posted marginal declines against the Pound in the absence of any significant domestic macro releases. The greenback has moved marginally higher against the Euro, as downbeat import data from China highlighted weakness in the global economy. Moreover, the Eurozone finance ministers meeting offered no major relief to market participants, as no progress was made on activating the region’s rescue funds to intervene in the bond markets to lower soaring borrowing costs for Spain and Italy. However, gains remain minimal as dovish comments from key Fed officials strengthened hopes that the US Fed might resort to fresh monetary policy actions during the course of the year, to revive the nation’s economic growth. With no major economic releases scheduled for today’s trading session, the US Dollar is expected to trade on cues ahead of the minutes of the Fed’s recent monetary policy meeting scheduled tomorrow.

Euro – European Markets

The Euro is trading on a weaker footing against the majors, as market euphoria following last month’s EU Summit faded after Eurozone finance ministers refrained from taking concrete measures to deal with rising borrowing costs in the region’s peripheral economies. Moreover the ECB President, Mario Draghi, hinted that the central bank may not shy away from another interest rate cut, if the economic outlook deteriorates. Additionally, weak French industrial production data released earlier today continues to strengthen claims that the region’s debt crisis has taken its toll on the major Eurozone economies. Meanwhile, at the meeting in Brussels, the Eurozone finance ministers agreed to grant Spain an extra year to adhere to its deficit reduction target and agreed to disburse the first installment of the bailout package of about €30 billion by the end of July 2012. However, the EU’s Economic and Monetary Affairs Commissioner, Olli Rehn, has warned that Spain will have to act fast to meet budget targets. News flow emanating from the second day of the meeting is likely to be keenly tracked in today’s session.

Other Currencies – Highlights

The Kiwi Dollar is trading lower against the US Dollar this morning on heightened global economic worries, after data released earlier today revealed that Chinese import growth for June fell short of market estimates. The prevalent weakness in the Chinese economy has prompted traders to remain cautious ahead of China’s second quarter GDP data due for release later this week. Moreover, lack of positive signals from the Eurozone finance ministers meeting also weighed on high yield currencies. Weakness in the global economic environment has dampened sentiment among business houses in New Zealand, as revealed in the quarterly survey from the New Zealand Institute of Economic Research. Meanwhile, house prices in New Zealand continued to climb for June. With little on offer in terms of domestic economic releases today, New Zealand’s manufacturing PMI and a raft of Chinese economic data due later this week are likely to prove crucial for the Kiwi Dollar against the majors.