In the midst of the prevailing recessionary environment in the UK, markets are speculating that the government will be forced to embrace growth enhancing measures with the BoE resorting to further easing, putting its debt reduction targets in jeopardy. The dismal US new home sales data released yesterday has further strengthened the case for the Fed to inject a fresh round of liquidity. Against this backdrop, a raft of data due today will be closely eyed. In Europe, the ECB Governing Council member hinted that the ECB could play a bigger role in tackling the region’s debt crisis.

Pound Sterling – UK Markets

Sterling slid against the US Dollar and the Euro in yesterday’s trading session after data revealed that UK’s economic growth contracted for the third successive quarter. Record rainfall dampened consumer spending and the extra holiday during the quarter added to pressures from austerity cuts and the Eurozone debt crisis. The figures have intensified concerns that the UK economy could struggle to meet its deficit targets and has increased the likelihood of an interest rate cut and more QE in future. Offering a ray of hope, the CBI‘s Industrial Trends Survey revealed that orders grew more than expected for July. Moreover, the third quarter economic growth is also expected to be positively influenced by ticket sales and tourist spending during the London Olympics. In today’s trading session, the Pound is holding well against both the Euro and the US Dollar. In the absence of any major economic release during the week, Sterling is expected to seek direction from key economic indicators in the US and news flow from the Eurozone.

US Dollar – US Markets

The US Dollar slipped against the Euro yesterday following hopes of some policy action in the Eurozone and weak economic data in the States. US new home sales in June posted their biggest drop in more than a year, reinforcing the view that the US Federal Reserve might consider more easing steps to boost the economy. Pending home sales data due later today is expected to receive modest attention against the backdrop of yesterday’s weak housing data. On the manufacturing front, today’s reading on durable goods orders for June is expected to set the stage for second quarter GDP data while the Kansas Fed’s manufacturing index for July is expected to shed more light over the state of manufacturing activity in the third quarter. With trends in the US job market playing on the minds of the Fed’s policymakers, jobless claims data scheduled later today is expected to be closely tracked by market participants. With the US Dollar trading marginally higher against the majors this morning, domestic economic releases scheduled later today are expected to have a profound impact on the US Dollar.

Euro – European Markets

The Euro staged a recovery against the majors in yesterday’s trading session, on hopes that the ECB might play a bigger role in tackling the region’s debt crisis after the ECB Governing Council member, Ewald Nowotny, opined that he sees grounds for providing the Eurozone bailout fund a banking license that would enable it to tackle the crisis in a more effective manner. Today’s ECB President, Mario Draghi’s speech might offer a clearer picture on the views of the ECB policymakers over granting a banking license to the crisis-fighting firepower. In an attempt to soothe market concerns, the Spanish economy ministry denied earlier reports that Germany had urged Spain to request a €300 billion bailout. Meanwhile, a key ally of Chancellor Angela Merkel, hinted that a second restructuring of Greek debt might be on the cards. On the macro front, despite falling business confidence and steadily deteriorating manufacturing activity, data released earlier today revealed that the German consumer confidence improved for August. With the Euro trading marginally lower against the majors in today’s trading session, macro data from the US and situation in Spain and Greece are expected to remain the main focus among traders.

Other Currencies – Highlights

The Japanese Yen has climbed against the high yield currencies this morning on increased risk aversion among traders. Meanwhile, the consumer price inflation data scheduled for release towards the end of today’s trading session would be closely watched for more clarity over the steps that the Bank of Japan (BoJ) might resort to tackle its flagging economy. Besides, retail sales data is also likely to be keenly eyed by market participants. More easing measures remains in the realm of possibility after the BoJ Governor, Masaaki Shirakawa, earlier opined that the central bank would stick to an ultra-easy monetary policy stance. Meanwhile, the BoJ’s Deputy Governor, Hirohide Yamaguchi, indicated yesterday that the central bank would not hesitate to implement additional monetary easing, if the economic outlook weakens or if risks intensify due to external shocks. In today’s trading session, the Japanese Yen is expected to seek direction from economic releases in the US and news flow emanating from the Eurozone.