Fed Passes Baton to ECB

The Fed Chairman, Ben Bernanke's much awaited speech at the Jackson Hole annual symposium provided little in terms of specifics to boost the economy. Although he fell short of explicitly hinting at QE3, he reiterated that unemployment is “a grave concern” and that the Fed would stand guard to counter economic shocks, propelling high yield currencies. The US jobs and manufacturing data later this week is likely to be scrutinised for further cues. In Europe, the ECB policy meeting on Thursday holds prime focus, as the central bank is expected to outline measures designed to rescue troubled European nations. Meanwhile, the U.K. received some solace after data revealed an uptick in the manufacturing PMI for August.

Pound Sterling – UK Markets

On Friday, the Pound climbed against the greenback after the Fed Chairman rekindled hopes of a fresh round of monetary easing for the US economy, if required. Meanwhile amid growing pressure to abandon their austerity plans George Osborne, indicated that the Coalition would aim ease planning laws and boost lending to small businesses to revive the ailing economy. The Pound has moved sharply higher against its major peers this morning after data revealed an improvement in the British manufacturing PMI for August. Additionally, the Lloyds business barometer released overnight showed a stark improvement. Market participants expect the BoE to refrain from inducing fresh easing measures in its monetary policy meeting later this week. The outgoing BoE policymaker, Adam Posen, urged global central banks to implement fresh easing measures to revive their respective economies. In today’s trading session, markets are keeping a close eye on the domestic retail sales data from the BRC later today which is expected to provide insights over the state of Britain’s retail sector during the London Olympics.

US Dollar – US Markets

The Fed Chairman, Ben Bernanke, in his speech at Jackson Hole reiterated that the US economic recovery was "obviously far from satisfactory" and that stagnation in the US labour market remains a "grave concern”. However, he stopped short of providing a clear signal of an imminent monetary easing action. Rekindled hopes of QE3 weakened the US Dollar against its major peers on Friday. In today’s trading session, the greenback is trading marginally higher against its major counterparts. Meanwhile, concerns over China’s economic prospects continued to worry markets after data indicated weakness in the Chinese manufacturing sector. On the macro front, data released on Friday indicated an unexpected improvement in Reuters Michigan consumer sentiment index, while factory orders grew at a faster pace. This coupled with non-farm payrolls and ISM manufacturing data due later this week should help in steering the future course of action for the Fed in its next monetary policy meeting. Today being a public holiday in the US, the US Dollar is expected trade on external cues in this trading session.

Euro – European Markets

The Euro briefly rallied against the US Dollar in Friday’s trading session, as the Fed Chairman revived hopes of QE3. However, last week’s optimism took a hit after data out earlier today revealed weakness in the Chinese economy. In contrast, manufacturing data from the Eurozone has shown some signs of improvement. With the annual symposium at Jackson Hole coming to an end, the Fed Chairman, Ben Bernanke has passed the mantle to the ECB to provide direction to currency markets. The ECB’s policy meeting on Thursday hogs the spotlight, with markets expecting the central bank to outline details of its bond-buying scheme aimed to rein in borrowing costs of peripheral nations. Apart from the monetary policy meeting, markets are also expected to set their sights on this week’s GDP and retail sales data in the Eurozone which is expected to provide clarity over the impact on consumer spending.

Other Currencies – Highlights

The Aussie Dollar has slipped sharply against its major peers in today’s trading session, hit by weak economic data. Data revealed that retail sales in Australia unexpectedly slipped for July, while the manufacturing activity contracted for a sixth straight month, albeit at a slower pace. Additionally, downbeat macro data from China continued to hamper risk sentiment. The grim state of China’s manufacturing sector was evident after data revealed that the HSBC manufacturing PMI slipped to the lowest level since March 2009, while the official PMI revealed that the nation’s manufacturing activity unexpectedly contracted for August. Against the backdrop of weak set of economic releases and lack of any major cues from the Eurozone and US in today’s session, traders have turned cautious ahead of tomorrow’s Reserve Bank of Australia’s monetary policy meeting, wherein the central bank is widely expected to keep its interest rate unchanged.