World Watches Bernanke

High yield currencies outperformed yesterday as the possibility of the US Federal Reserve embracing fresh measures gathered momentum following downbeat retail sales data. Against this backdrop, today’s testimony by Ben Bernanke and consumer price inflation data would be in focus for hints over QE3. Meanwhile, yesterday the IMF indicated that the British economy would grow at an anemic pace in 2012, despite the series of stimulus induced by the BoE. Data just out has indicated that U.K. inflation eased for June. In Europe, the German ZEW survey later today is expected to provide more evidence of the economic weakness spreading to the core nations of the currency union.

Pound Sterling – UK Markets

The Pound steadily advanced against the US Dollar in yesterday’s trading session amid speculation of a new round of monetary easing in the US following yesterday’s dismal US retail sales data. However, hopes of an economic recovery in the UK remains a remote possibility after the IMF indicated that the UK economy would come to a virtual standstill with growth of just 0.2% this year, compared to its previous forecast of a 0.8% growth. The lowering of this growth estimate has raised concerns among market participants over Britain’s ability to maintain its “AAA” credit rating. Meanwhile, Sterling hung on to its recent highs against the Euro on prevalent worries over the debt situation in the Eurozone. In today’s trading session, the Pound has managed to eke out marginal gains against the US Dollar. The latest inflation figures just out has revealed that consumer price inflation in the UK eased for June. With this session dry in terms of major macro releases, market participants will stay focused on the comments from the BoE Governor, Mervyn King, due later today.

US Dollar – US Markets

In the midst of the gloomy economic prospects in the US, the greenback declined against its major peers in yesterday’s trading session. Hopes of the US Fed undertaking fresh measures to spur growth received a boost after retail sales in the US unexpectedly dipped for June. Moreover, the IMF shaved its US growth projection to 2% for the current year from a 2.1% growth estimated in April. The US Dollar has weakened marginally against the majors this morning ahead of the nation’s consumer price inflation data later today which is expected to remain below the Fed’s target rate and maintain its downward trajectory for June. This should provide further ammunition to the Fed to launch a QE3 in the future, if required. However, industrial production scheduled later today is expected to recover for June. With the economic situation in the US being the focal point for traders, the Fed Chairman, Ben Bernanke’s testimony before the Congress is likely to be closely watched for measures the central bank might use to combat the slowdown.

Euro – European Markets

Yesterday, the Euro moved higher against the US Dollar amid hopes of QE3 in the US. However, the Euro continued to languish close to its recent lows against the Pound in yesterday’s trading session amid reports that the ECB might demand senior bondholders to shoulder losses in the Spanish bank recapitalisation plan. Data indicating that the region’s consumer price inflation remained stable for June had minimal impact on the Euro against the majors. In today’s trading session, the Euro has continued to post modest gains against the greenback on increased speculation of fresh monetary stimulus from the Fed. In a noteworthy development, the German Constitutional Court indicated that it would not deliver its decision on the Eurozone’s bailout fund until 12 September 2012, causing further delays to the European Stability Mechanism coming into effect. The Eurozone and German economic sentiment indices scheduled later today are likely to garner increased market attention for hints over the prevalent economic situation in the region.

Other Currencies – Highlights

The Australian Dollar edged higher against its major peers in today’s trading session after minutes of the Reserve Bank of Australia’s (RBA) latest monetary policy meeting provided optimism over the nation’s economic outlook, dousing expectations that the central bank might lower its benchmark interest rate in August. However, downside risk to the Australian economy looms large as the IMF slashed the growth outlook for two of Australia's key trading partners, China and India. Moreover, data released earlier today revealed a drop in new motor vehicle sales in Australia and a sharp fall in the Chinese foreign direct investment for June. The testimony by the US Fed Chairman, Ben Bernanke, is likely to set the risk tone in today’s trading session. Additionally, market participants are likely to keep a tap on the Australian leading index and business confidence index scheduled for release later this week.