UK Economy Marches On

Industrial and manufacturing production data just out in the UK complements the recent upbeat economic activity across different sectors. Against this backdrop, the NIESR GDP estimate later today will provide useful inputs with regards to the nation’s growth prospects in the latter half of the year. Across the Atlantic, Fed officials continue to confound markets on the timing of the QE3 withdrawal. Against this backdrop, comments from some Fed policymakers during this week will be keenly watched, especially with a light domestic economic calendar for the week ahead. Going forward today, the Italian GDP and German factory orders data will hold market interest for further direction to risk appetite.

Pound Sterling – UK Markets

Yesterday’s upbeat services PMI data reinforced belief that the UK economy is experiencing persistent improvement in fundamentals and lifted the Pound above the majors yesterday. The services PMI rose for the seventh consecutive month with expansion in July at the fastest pace since December 2006. Also, the BRC retail sales report released late yesterday night hinted at a revival in the retail industry, with higher consumer spending amid an overall positive macro environment in the country. However, the positive US non-manufacturing PMI released yesterday arrested the upward trend in the Pound-US Dollar pair. Meanwhile, data just out has shown an improvement in industrial and manufacturing for June, providing further impetus to the economic recovery. This comes on the back of better than expected Halifax house prices data released earlier today and should provide support to the Pound. The NIESR GDP estimate scheduled later today will give valuable insights on whether the recent buoyant data will actually boost overall economic growth going forward. However, the BoE inflation report due tomorrow remains a key risk event for Sterling and will offer insights into pricing pressures in the economy.

US Dollar – US Markets

The Federal Reserve Bank of Dallas President, Richard Fisher, indicated that the Fed was close to scaling back its $85 billion in monthly bond purchases after Friday’s report showed that the US unemployment rate touched the lowest level in over four years, triggering a wave of uncertainty in markets. The positive non-manufacturing PMI released yesterday added to the recent mixed economic data over the last few weeks, confounding markets over the Fed’s likely policy stance. The rise in non-manufacturing activity for July was the fastest since February earlier this year. In today’s trading session, the greenback is trading in a tight range against the common currency amid a lack of decisive triggers. The US trade balance data and comments from the President of the Federal Reserve of Chicago will grab market attention later today. With no major domestic releases scheduled for the week ahead, external cues are likely to play a pivotal role in determining the direction of the greenback against the majors.

Euro – European Markets

Lacklustre Euro zone retail sales, coupled with the IMF’s downbeat assessment of France, dented the single currency’s appeal against the US Dollar and the Pound yesterday. The IMF yesterday urged France to go slow on its austerity stance so as to put its house in order and return to growth, validating fears that core Euro zone nations face serious threats from the region’s debt crisis. Meanwhile, despite an improvement in consumer sentiment as suggested by the recent sentiment indices, data released yesterday indicated that monthly retail sales in the Euro zone declined for June, though less than expected. Traders are expected to set their sights on the Italian second quarter GDP and German factory orders data later today. In line with the recent uptick in economic activity as endorsed by PMI releases, today’s second quarter GDP data is expected to reveal a slower pace of contraction in the Italian economy while German factory orders are expected to rebound for June. In an otherwise light global economic calendar, today’s upbeat European data should help the single currency to recoup some of its losses against the greenback.

Other Currencies – Highlights

The Kiwi Dollar traded higher against the greenback yesterday, but the upside was limited as fresh speculation over the Fed scaling down its asset purchase programme sooner than expected underpinned demand for the US Dollar. Moreover, news that China and Russia imposed import bans against products sourced from New Zealand’s largest dairy exporter, Fonterra Co-operative Group, fuelled concerns surrounding one of the most important sectors of the New Zealand economy. On the domestic front, the labour market data scheduled later today will be keenly eyed and is expected to show a rise in the unemployment rate for the second quarter. This, along with the recent scare from China, New Zealand’s largest dairy products customer, could well lead the Reserve Bank of New Zealand to ponder the possibility of stimulus to encourage economic growth further. For further direction to the Kiwi Dollar, markets will keep an eye on macro releases from Europe and China scheduled during this week.