Nervous Buildup to Central Bank Meetings

With the ECB meeting being the focal point in this week’s session, hopes of a policy action from the central bank continued to build following a flurry of pledges to save the Euro. Though the meeting between the US Treasury Secretary and German Finance Minister yesterday emphasised the need for more co-operation, the German stance will be keenly tracked. With the prevailing possibility of the Fed embracing fresh easing measures, the central bank’s policymakers are expected to begin their two-day monetary policy meeting today. At home, echoing broader economic weakness, BoE data showed mortgage approvals slumped while CBI indicated that retail sales rose less than expected.

Pound Sterling – UK Markets

The Pound is trading flat against the greenback and the Euro in today’s trade. Data from the GfK released earlier today revealed that UK consumer confidence remained stable for July. Despite a weak set of economic releases from the UK, the Pound managed to edge higher against its peers in yesterday’s session, amid improved investor sentiment on hopes of some policy action from the ECB later this week. The CBI survey yesterday strengthened worries that the recovery in the retail sector might be short lived, as reported sales fell more than expected in July. Meanwhile, data from the BoE revealed that mortgage approvals slumped for June, reflecting broader economic weakness, but consumer lending held up relatively well. With yesterday’s consumer confidence and retail sales data offering a mixed picture, the BRC’s shop price inflation figure scheduled for release towards the end of today’s session is expected to provide a clearer picture regarding Britain’s retail sector. The movement in the Pound will be largely driven by market sentiment from a slew of Eurozone indicators due later today.

US Dollar – US Markets

The US Dollar is trading flat against its peers, as traders brace themselves for a flurry of key economic releases today. Meanwhile, market participants remain cautious in the midst of looming uncertainty over the stance the Fed’s policy makers would adopt in the two-day meeting beginning today. With recent retail sales data showing signs of weakness, the personal consumption indicator and consumer confidence index will be closely tracked for further insights into the recent trend in the nation’s consumer behavior. Meanwhile, S&P’s house price index is also expected to garner modest attention. Regional manufacturing indices continued to offer mixed signals, as the Dallas Fed’s manufacturing index fell sharply for July, increasing the significance of tomorrow’s ISM manufacturing reading. Despite a positive start to yesterday’s session, the greenback steadily retreated against the Euro, on increasing hopes that the ECB may soon reactivate its bond-buying programme to help cut Spanish and Italian borrowing costs.

Euro – European Markets

Despite high hopes of action by the ECB to counter the region’s debt crisis, the Euro traded flat against the US Dollar as data revealed an unexpected fall in German monthly retail sales for June, thereby strengthening worries that the nation’s economy might slow considerably in the second quarter. The labour market in the Eurozone continued to portray a worrying picture, as unemployment rates in Spain and Italy continued to climb. Although German unemployment remained steady at 6.8%, the Eurozone’s jobless rate due for release later today is expected to indicate an uptick. The Euro climbed steadily against the greenback in yesterday’s session, on hopes that possible monetary actions by the ECB would receive German backing, after German Finance Minister Wolfgang Schaeuble offered his support to a commitment by European leaders to defend the single currency union. Moreover, optimism brewed ahead of the ECB’s monetary policy meeting as the central bank President, Mario Draghi's remarks last week have stirred expectations that the ECB may soon reactivate its bond-purchase programme to ease Spanish and Italian borrowing costs.

Other Currencies – Highlights

The Aussie Dollar strengthened against the greenback on the back of better than expected building approvals for June, thereby offering signs of recovery in the property sector. Annually, the nation’s building approvals unexpectedly climbed 10.2% following a 9.1% growth recorded in the previous month. Moreover, yesterday home sales data revealed an improvement, while private sector credit growth remained steady at 4.4% for June. However, focus remains on a slew of global central bank policy meetings during the week and are expected to closely influence high yield currencies. Meanwhile, the Chinese PMI data tomorrow and the Aussie retail sales data later this week are also expected to have an impact on the AUD.