Let's Twist Again

Across the Atlantic, the Fed poured cold water on hopes of a QE3 yesterday, although it offered some respite by extending its “Operation Twist” program. The Fed also lowered its 2012 GDP growth forecast and today’s housing data is expected to confirm this downward bias. Meanwhile, the PMIs released across Europe and China today remained subdued and are weighing on high yield assets. The Spanish bond auctions and bank audit results, coupled with the EU finance ministers meeting, are likely to garner market attention today. At home, the case for further easing by the BoE has strengthened following yesterday’s minutes indicating a widening split among policymakers.

Pound Sterling – UK Markets

The Pound has continued to decline against the US Dollar this morning on growing speculation of a new round of quantitative easing for the British economy. Amid easing inflation and improving consumer confidence, data just out revealed that retail sales in the UK recovered for May. Meanwhile, market participants keenly await the release of CBI’s trends survey later today for further hints about the retail sector. However, the Pound has moved marginally higher against the Euro today following disappointing manufacturing PMIs across Europe. The minutes of the BoE’s latest monetary policy meeting released yesterday revealed that the probability of a new round of QE in the next meeting remains elevated, as four members including the Governor voted in favour of raising the asset purchase target. Dovish statements from the Deputy Governor, Paul Tucker and MPC member, Ben Broadbent, during this month had sparked speculation that they might switch their stance in the next monetary policy meeting. Further strengthening the concerns raised by the central bank, data released yesterday revealed that UK claimant count unexpectedly rose for May.

US Dollar – US Markets

The US Dollar is trading higher against the majors this morning, as weak manufacturing PMI readings from China and other Euro zone nations fueled concerns about a slowdown in the global economy. In the much awaited Federal Reserve monetary policy meeting yesterday, the Fed provided another dose of monetary stimulus by expanding its “Operation Twist” program by $267 billion until the end of this year and indicated that it was ready to do more, if necessary. However, the outcome fell short of some market expectations which had hoped for the Fed to launch a QE3. Further pouring cold water on market hopes, the Fed slashed its 2012 GDP growth forecast and indicated weakness in the labour market. Apart from the jobless claims report due later today, markets are expected to focus on the Philadelphia Fed manufacturing activity index, as last week’s dismal industrial production and weak manufacturing activity in the New York region have stoked fears over growth in the manufacturing sector. Additionally, traders are likely to track existing home sales data which is expected to be largely downbeat.

Euro – European Markets

In today’s trading session, the Euro has retreated against its major counterparts after data released earlier today indicated that manufacturing activity in major Eurozone nations continued to contract for June. Coupled with the weakness in Chinese manufacturing sector, it has dampened hopes of a revival in global economic growth. Meanwhile, after weeks of political uncertainty in Greece, the nation took its first tentative step towards regaining stability as New Democracy leader, Antonis Samaras, was appointed the nation’s Prime Minister. Moreover, German Chancellor, Angela Merkel, indicated that there is a possibility of using Europe's bailout funds to buy Eurozone sovereign bonds in secondary markets. The Spanish bond auction later today is likely be closely watched by traders, especially after the nation’s 10 year bond yield rallied to a Euro-era high earlier this week. Market participants are also eyeing the outcome of the Spanish banking sector audit later today. Additionally, the Eurozone finance ministers meeting later today is expected to provide more hints about the plans laid out by the policymakers’ for tackling the fiscal problems in the region.

Other Currencies – Highlights

The Swiss Franc has retreated against the US Dollar in today’s trading session after data from ZEW released yesterday revealed that the nation’s investor sentiment deteriorated sharply for June. The KOF Institute’s economic forecast scheduled for tomorrow is expected to provide more insights into the growth prospects of the Swiss economy. Markets seem to have taken in their stride upbeat Swiss trade balance data for May released earlier today. However, weak manufacturing PMI data from China and other Eurozone nations suggest that growth prospects remain weak in most of Switzerland’s major export destinations. Among other major economic releases, data revealed a slower pace of expansion in Swiss M3 money supply for May. The outcome of the Spanish bond auctions and news flow from the EU finance ministers meeti