FOMC Minutes On Radar

With the recent spate of economic data from the US pointing towards a slowdown, the minutes of the Federal Reserve’s latest monetary policy meeting due today is likely to be watched closely to gauge the possibility of the Fed embracing fresh easing measures during the course of the year. Europe faces a dilemma following reports that the German constitutional court might take three months to come to a conclusion on the European Stability Mechanism (ESM) ratification. Back at home, manufacturing production and trade data released yesterday offered some hope that the British economy might show signs of improvement in the second quarter.

Pound Sterling – UK Markets

In yesterday’s trading session, the Pound strengthened against the Euro following an unexpected rise in manufacturing production and better than expected trade balance data for May. However, the BoE Governor, Mervyn King, offered a contradictory view as he observed no “great signs” of an economic recovery. Despite the positive set of macro data, the underlying economic situation in the UK remains weak as the NIESR indicated that the British economy continued to contract during the second quarter. However, the agency expects the economy to fare better in the third quarter. Meanwhile, the Pound has moved higher against the US Dollar this morning ahead of the release of the minutes of the Federal Reserve’s latest monetary policy meeting slated later today. With a light domestic economic calendar today, news flow from across the Atlantic and the Eurozone are likely to govern the movement in Sterling against the majors.

US Dollar – US Markets

The US Dollar weakened against the Euro in yesterday’s trading session as a lack of positive solutions from the Eurozone finance ministers meeting and fears of a delay in the German approval for the Eurozone's bailout fund triggered flight to safe haven currencies. In today’s session, the greenback has begun trading on a weak footing against the majors as recent dovish comments from some of the Fed’s policy makers prompted traders to remain cautious ahead of the release of the central bank’s minutes for the latest monetary policy meeting. Meanwhile, Fitch indicated that the negative outlook on the US “AAA” credit rating is unlikely to change until 2013 as it awaits clarity over the nation’s deficit reduction plans following this year’s election. On the macro front, market participants await trade balance and wholesale inventories data scheduled for release later today. However, all eyes are likely to be set on the release of the Fed’s policy meeting minutes later today in order to gauge the prospects of a QE3 in the future.

Euro – European Markets

The Euro retreated against its major peers yesterday after Germany’s top court indicated that it would require more time on delivering its decision on the German approval of the ESM and fiscal pact, potentially further delaying the region’s bailout fund from coming into force. Additionally, the Italian Prime Minister, Mario Monti, admitted that the prospect of Italy tapping into the Eurozone’s rescue funds in the future could not be ruled out. However, providing some relief to market participants, Spain agreed to clean up its financial system and place the economy on the road to recovery following the Eurozone finance ministers’ agreement on providing Spain with €30 billion worth of urgent funding by the end of this month. In today’s trading session, the Euro has moved higher against the US Dollar and the Pound. Data released earlier today revealed that the German consumer price inflation steadied for June while the French current account deficit narrowed less than expected for May. With not much on offer from the macro front, the FOMC minutes slated later today is expected to set the direction for risk appetite in this trading session.

Other Currencies – Highlights

The Canadian Dollar has edged higher against the US Dollar after data from Canada Mortgage & Housing Corporation revealed that housing starts in Canada unexpectedly rose to 222,700 units in June compared to 217,400 units recorded in the previous month. The house price data scheduled for release tomorrow is expected to provide more hints over the nation’s housing sector. In today’s trading session, the Canadian trade data is likely to be closely watched by market participants to gauge the impact of the recent weakness observed in the US economy. Additionally, with the QE3 chatter in the US getting louder, the Fed’s minutes for the latest monetary policy meeting is expected to set the tone in this trading session.