QE3 On The Radar Again

In the UK, data just out indicated that manufacturing activity contracted for May, strengthening convictions that the BoE may resort to further stimulus to counter the prevalent recessionary environment. In this perspective, the BoE’s monetary policy meeting scheduled next week would be closely eyed. Meanwhile, the situation in the Eurozone remains fragile with calls to support the region’s struggling banks getting louder by the day. However, the expected positive outcome of the Irish referendum later today may provide a brief respite to the Euro. Across the Atlantic, today’s non-farm payrolls will garner market attention especially after yesterday’s downward revision to the first quarter GDP and weak jobs reports.

Pound Sterling – UK Markets

Resurgent talks of QE took a toll on the Pound against the majors yesterday after BoE Deputy Governor, Charlie Bean, hinted at scope for more asset purchases. Moreover, escalating concerns over the Spanish scenario sapped out demand from high yield assets. The trend has rolled over this morning after the British Chambers of Commerce spooked markets as it slashed its 2012 growth forecast for the UK economy to 0.1% from 0.6% and backed additional easing. Data just out indicated that the British manufacturing activity contracted for May, fanning market speculation of further easing. Against this backdrop, market participants are expected to closely track next week’s construction and services PMI data for a clearer picture of the overall economic landscape. However, the BoE’s monetary policy decision and its inflation expectations due next week will hog the spotlight and are likely to influence the direction of the Pound against the majors.

US Dollar – US Markets

Yesterday, the US Dollar advanced against the majors on concerns over the health of the global economy. The downward revision to the US first quarter GDP figures and a sharp deterioration in Chicago area manufacturing activity has aggravated concerns in the world largest economy. The greenback has continued to move higher against its major counterparts this morning following weaker than expected Chinese official manufacturing data and contraction in the manufacturing activity of major Eurozone nations. Moreover, prevailing weakness in the Spanish economy has boosted the appeal for safe haven currencies. In today’s trading session, market focus has shifted to the US jobs market as the crucial non-farm payrolls report for May is due later today. Market expectations of the positive surprise has lost steam following yesterday’s disappointing jobless claims and weaker than expected ADP private sector payrolls report. Personal consumption and ISM manufacturing are other key macro releases which are expected to provide hints over the performance of the US economy.

Euro – European Markets

The Euro witnessed losses against the US Dollar in yesterday’s trading session amid persistent concerns surrounding the global economy. Highlighting the dire state in the Eurozone, ECB President, Mario Draghi, cautioned that the configuration of the currency would become "unsustainable", if policymakers do not take concrete action. The downside bias in the Euro continued against the greenback today following the IMF denial of Spanish bailout plans or rescue requests. Additionally, the Italian Prime Minister, Mario Monti and the ECB President, Mario Draghi, urged Germany to alter its stance over providing direct Eurozone aid for the region’s struggling banks. Further denting risk appetite, weak manufacturing activity in China and contraction in the German, French and Eurozone manufacturing PMI has raised serious questions over the health of the global economy. With no other crucial releases on tap for today, focus lies on the outcome of the Irish fiscal compact referendum slated later today. Market reports indicate that the vote will pass by more than 60% in favour.

Other Currencies – Highlights

The Aussie Dollar has took a hit against the US Dollar this morning as a drop in Chinese official manufacturing PMI for May and a downward revision to the HSBC manufacturing PMI fuelled concerns over a slowdown in Australia’s major trading partner. Moreover, data released earlier today indicating a decline in Australian manufacturing index also weighed on the Australian Dollar. Yesterday’s data revealing a sharp fall in Australian building approvals, coupled with the downbeat retail sales data released earlier this week, has further highlighted the fragility in the domestic economy. Against this backdrop, markets await the Reserve Bank of Australia’s (RBA) rate setting meeting scheduled early next week wherein the central bank is expected to keep its key interest rate unchanged. Other major economic releases scheduled next week include employment, construction activity and trade balance.