IMF Spurs Risk Appetite

The IMF Chief’s call for more time to be given to debt laden nations in Europe to put their house in order was well received by the Euro yesterday. Meanwhile, conflicting views continue to emerge from the BoE’s rate setting committee, as the Deputy Governor opined that QE is steadily losing its relevance and the central bank must explore other ways to boost growth. The BoE’s minutes due next week should make interesting reading. Across the Atlantic, upbeat jobless claims data yesterday suggested some improvement in the economic landscape following the Fed’s QE3. Today’s consumer confidence data is likely to shed more light on this front.

Pound Sterling – UK Markets

The Pound took a breather against the Euro in yesterday’s trading session after the IMF Head, Christine Lagarde, indicated that peripheral nations in the Eurozone should be offered more time in order to tackle their fiscal woes. However, Sterling strengthened against the greenback on improved market sentiment. Meanwhile, mixed signals from BoE policymakers continue to heighten uncertainty ahead of next month’s monetary policy meeting. Although latest comments indicate that the BoE Governor, Mervyn King, is leaning towards raising the BoE’s asset purchases the Deputy Governor, Paul Tucker, opined that QE as an easing tool has lost its sheen and that the BoE must explore other options to spur growth. With no major domestic events scheduled today and the Pound trading under pressure against the Euro, traders will focus on economic releases from both sides of the Atlantic to gauge risk appetite. Meanwhile, traders are expected to brace themselves for a flurry of UK macro releases next week including inflation, retail sales and employment data along with the BoE minutes of its last policy meeting.

US Dollar – US Markets

The IMF Managing Director, Christine Lagarde’s comments that she is in favour of providing more time to Greece and Spain for reducing their budget deficits has continued to fuel risk appetite among investors and has led the US Dollar to weaken against the majors this morning. Meanwhile, economic indicators from the US released yesterday continued to strengthen belief that the economic recovery is gaining momentum. The jobless claims in the US unexpectedly declined last week and slipped to the lowest level in more than four and a half years, reflecting the buoyancy shown by the recent employment data. The Fed’s Philadelphia President, Charles Plosser, opined that the current monetary policy stance could force the central bank to face the threat of higher levels of inflation in the long run. The producer price inflation figures due later today are expected to offer some insight into latest inflationary trends. Additionally, markets are keeping a tab on US consumer confidence data later today, which is expected to hover near the strongest level since May 2012.

Euro – European Markets

Calls from peripheral nations for easing the EU’s recommended austerity scheme found support in the IMF Managing Director’s recent comments, wherein she stated that debt-burdened Greece and Spain should be offered more time to reduce their budget deficits, as strict austerity measures would do more harm than good. The soothing comments from the IMF Chief have continued to work in favour of the Euro against its peers in today’s trading session. Additionally, the latest credit rating downgrade of Spain by S&P has strengthened market speculation that the nation might have to soften its stance on receiving further aid from its European counterparts. However, escalating fears about the fiscal situation in the Eurozone had led to a spike in borrowing costs in yesterday’s Italian bond auctions, but demand remained robust. In today’s trading session, industrial production data in the Eurozone due later today is expected to show further annual contraction in August. Traders are also expected to maintain focus on economic releases from the US later today for further direction.

Other Currencies – Highlights

The Japanese Yen has declined against its major counterparts in today’s trading session, as traders shunned the Yen on account of Japan's resolve to prevent the domestic currency’s appreciation. Japanese Finance Minister, Koriki Jojima, reiterated that the strength of the Yen is hurting the nation’s economy and demanded that G7 countries co-operate on foreign exchange, if necessary. Moreover, the Japanese government downgraded its economic assessment for a third straight month. The possibility of a downgrade of Japan’s credit rating remains a threat, after Moody's indicated that the political rift between the Japanese government and its opposition parties has stalled important legislations. On the economic front, data revealed that consumer sentiment in Japan registered its first drop in two months. Economic releases from the Eurozone and the US will hold the key in setting risk appetite levels in today’s trading session.