While yesterday’s US GDP data offered clear evidence that the economic recovery is gaining momentum, the US Fed Chairman offered a cautious outlook and provided no clear hints about the tapering of QE3. This has indeed shifted market focus on to tomorrow’s non-farm payrolls report. Meanwhile, investors have adopted a defensive stance today ahead of the ECB and the BoE policy meetings due later today.
The global economy is showing signs of a recovery, as data out today revealed that the UK manufacturing PMI climbed for July along with an improvement in manufacturing activity across Europe. This comes on the back of a surprisingly upbeat Chinese official manufacturing report, turning focus to an equivalent figure from the US later today.
Pound Sterling – UK Markets
The Pound clawed back most of its losses against the US Dollar yesterday after the US Fed gave no clear hints on when the central bank plans to scale back its massive stimulus measures. Sterling has moved higher against the US Dollar this morning, as data just out has revealed that the manufacturing barometer of the UK economy improved more than expected for July. This shifts market focus on to the construction PMI due tomorrow and next week’s services data for a clearer picture of the nation’s growth trajectory. This morning, traders are keenly eyeing the BoE monetary policy meeting due later today. Although the BoE is expected to reaffirm its commitment to the current policy stance, markets keenly await today’s meeting, especially to see if policymakers adopt any radical policy measures to boost the nascent economic recovery.
Apart from the BoE meeting, markets are also expected to keep a tab on US macro data later today for further insights into the pace of recovery in the world’s largest economy.
US Dollar – US Markets
US GDP data, released yesterday, revealed that economic growth unexpectedly gained traction in the second quarter, while the ADP employment report also pointed towards an improving labour market, fuelling speculation among traders that the Fed might begin tapering QE3 in September 2013. However, the Fed Chief, in his post meeting press conference, offered no clear signals on the timing of a probable withdrawal of the current stimulus measures. Moreover, Ben Bernanke presented a slightly dovish picture of the US economy, as he opined that the pace of US economic growth was “modest”, a change from the "moderate" pace seen in June 2013 meeting.
With the Fed not providing any definite hint on QE3 withdrawal, market participants will keep a tab on the ISM manufacturing data and jobless claims data due later today for further direction. Also, the European central bank meetings will keep markets interested and could influence the movement of the US Dollar against the majors in today’s trading session.
Euro – European Markets
The single currency is languishing close to yesterday’s lows against the US Dollar and has also lost ground against the Pound in today’s trading session.
On the domestic front, yesterday’s employment data from Germany and Italy offered a ray of hope, with the unemployment rate in the Euro zone remaining unchanged at 12.1% for June, against market expectations of a rise. Furthermore, data out today has confirmed an improvement in manufacturing activity across Europe for July. Despite the recent improvement, markets remain concerned about its sustainability going forward. With employment still hovering at multiyear highs and inflation remaining well below the central bank’s target rate, all eyes and ears will be focused on the ECB policy meeting later today. With the cushion of modestly upbeat data, the ECB is likely to stick to its policy stance and use forward guidance to stimulate market sentiments. Apart from the domestic events, trading sentiment in the single currency will also be governed by events unfolding in the US in today’s trading session.
Other Currencies – Highlights
Although the surprisingly upbeat Chinese official manufacturing PMI data helped in easing concerns surrounding recovery prospects in the world’s second largest economy, the Australian Dollar failed to gain momentum against the US Dollar this morning after data revealed that manufacturing activity in Australia deteriorated significantly for July. However, the Housing Industry Association reported that the monthly new home sales in Australia rose for June. Mixed economic data suggests that the recent rate cuts undertaken by the Reserve Bank of Australia has failed to bring about a broad based improvement across all sectors. Against this backdrop, markets are expected to keep a tab on the next week’s services PMI, home loans as well as unemployment data for gauging the stance that the central might adopt in its policy meeting next week.
On account of a light day ahead, developments taking place in overseas markets are expected to play a pivotal role in charting the Aussie Dollar’s trend against the majors.