Forward Guidance from Carney

With yesterday’s industrial production data presenting further evidence that the UK economy is witnessing improvement across all sectors, market participants will remain focused on the BoE inflation forecast due later today for deciphering the central bank’s stance on the economy. Across the Atlantic, hawkish comments from two Fed officials have again brought to the fore questions pertaining to the timing of QE3 tapering. Against this backdrop, speeches from the few other influential Fed officials due later today will be keenly watched. In the meantime, after yesterday’s upbeat factory orders report in Germany, today’s industrial production data will be eyed for gauging signs of recovery in the Euro zone’s largest economy.

Pound Sterling – UK Markets

Although domestic fundamentals remain strong, the Pound has nudged lower against the US Dollar in today’s session following hawkish comments from two US Fed officials. Meanwhile, upbeat Italian GDP and German factory orders data led Sterling to trade on a weaker footing against the Euro yesterday. Yesterday’s data revealed that industrial production in the UK rebounded more than anticipated for June, rising at the fastest pace in more than two years, following lackluster numbers in May. Market perception of a wider economic recovery was further confirmed by the NIESR, as the agency indicated that the UK economy expanded 0.7% for three months to July, faster than the growth recorded in the second quarter. Against the backdrop of an apparent pickup in economic activity, markets are expected to remain glued to the BoE quarterly inflation report due later today. Sterling fell against the majors this morning on the back of the Bank of England Interest rate decision after Governor Mark Carney issued forward guidance pertaining to the Banks position on future rate movements. Speaking directly after the announcement, Carney stated that the Bank of England would not raise interest rates until Unemployment in the UK fell to 7%.

US Dollar – US Markets

Hawkish comments from two Fed officials have temporarily lifted the greenback’s appeal against the majors in today’s trading session. The Chicago Fed President, Charles Evans, who is seen to be among the vocal proponents of monetary accommodation, indicated that there is a valid possibility of the central bank trimming its asset purchases as soon as this September depending upon the economic performance. Similar views were also aired by the Atlanta Fed Chief, Dennis Lockhart. With markets remaining clouded with uncertainty over the Fed’s next policy move, comments from a few Fed officials during the course of this week will be keenly gauged to weigh the possibility of the US Fed stepping off its monetary gas pedal. Meanwhile, yesterday’s report showed that the US trade deficit narrowed sharply to its lowest level in more than three and half years on the back of record exports and reduced dependence on imported oil. Apart from few Fed officials speeches scheduled later today, cues emanating from overseas markets will hold prominence for the US Dollar’s demand against the majors. Additionally, some important economic indicators from China during the next two trading sessions will prove crucial for risk appetite.

Euro – European Markets

Yesterday’s session proved fruitful for the Euro after domestic data provided tentative signs of revival in the Euro zone economy. The single currency managed to breach the 1.33 mark against the US Dollar and traded on a firmer footing against the Pound after data revealed that Italy’s economy contracted less than expected for second quarter of 2013. Further providing a helping hand, reports showed that factory orders in Germany rebounded more than anticipated for June, bolstering hopes that economic recovery is picking pace in Europe's largest economy. German industrial production data due later today will be keenly gauged for further insights into the pace of the region’s recovery. Apart from this, markets are also expected to pay passing attention to Portugal’s unemployment data due later today. With the Euro trading marginally lower against the US Dollar in today’s session, markets are expected to keep a tab on today’s domestic events as well as comments from few US Fed officials due later today for further direction to market sentiment.

Other Currencies – Highlights

The Swiss Franc has failed to gather strength against the majors this morning on account of weak economic data from Switzerland and weakness seen in the Euro. A survey released by SECO today revealed that consumer sentiment in Switzerland worsened for July amid mounting pessimism towards the nation’s growth outlook and employment concerns. Against this backdrop, markets keenly await the unemployment data due tomorrow for a clearer picture about the nation’s employment scenario. Meanwhile, another report indicated that the annual consumer price index remained flat for July against the expectations of a 0.1% decline. The easing deflationary trend should provide some breathing space to the Switzerland National Bank which is grappling with various issues on the economic front. With no major domestic macro release apart from the unemployment report during this week, traders will keep an eye on developments taking place in the US and Europe for further direction.