Inflation Remains a Threat for UK

Although the latest data has shown that prices have cooled marginally in the UK, inflation continues to pose a threat as the CPI remains well above the BoE’s target rate. In the advent of the latest stance adopted by the BoE, tomorrow’s labour market report will remain critical for future monetary policy decisions. Meanwhile, with underlying economic conditions in the Euro region showing signs of improvement, all eyes are expected to stay focused on Euro zone industrial production and German sentiment indices data ahead of the Euro zone GDP due tomorrow, for cues on the region’s growth prospects. Additionally, US retail sales data will hold market attention, given its relevance to the Fed’s policy stance.

Pound Sterling – UK Markets

Sterling has failed to garner strength against the greenback in today’s session, as data just out has revealed that annual consumer price inflation dipped marginally to 2.8%, but still above the central bank’s target rate. Persistent inflationary pressures are likely to prevent the BoE from continuing its current accommodative stance. Meanwhile, tomorrow’s labour market report in the UK remains a key focus, especially after the recent change in stance by the BoE. Although the data is expected to reveal a slower pace of improvement, any positive surprises, given the recent buoyant performance, would likely aid the Pound, bringing forward expectations of the BoE altering its stance in the near future. The BoE minutes remain the other key event in tomorrow’s session. Meanwhile, RICS earlier today revealed that the house price balance in the UK rose for July, to reach its highest level since November 2006 and reinforcing a generally brighter picture of the British economy. In the midst of a lack of domestic news in today’s session, major economic releases from the US and the Euro zone are expected to grab market focus for further cues.

US Dollar – US Markets

A rather restrained trading session yesterday saw the US Dollar strengthen against its peers as traders continued to fret over the possibility of the Fed tapering its asset purchases programme sooner. However, the US Dollar is trading on a weaker footing against the Euro in today’s session ahead of key Euro zone economic releases due later today, which are expected to further boost the region’s recovery prospects. On the domestic front, reports released yesterday indicated that the US budget deficit widened more than expected for July, but the nation remains on track to substantially lower its deficit for the current fiscal year, largely supported by the recently adopted austerity measures. Meanwhile, US retail sales data scheduled for release later today is likely to show that retail sales climbed for the fourth successive month in July, thereby presenting a strong case for the Fed to taper its monetary stimulus sooner. A positive surprise in the figures is likely to increase demand for the greenback. Also, Atlanta Fed President Dennis Lockhart’s speech today will generate modest market interest.

Euro – European Markets

Today’s trading session has already seen the release of the German and Spanish CPI, which were in line with analysts’ expectations, indicating that a steady recovery is on cards in the Euro zone. However, the common currency has slid against the US Dollar after the release of the latest German inflation data. Market participants will keep a tab on the Euro zone industrial production and the German ZEW sentiment indices due later today, to gauge the extent to which the currency bloc’s economy has recovered from its prolonged recession. Meanwhile, all eyes are expected to stay focused on German, French, as well as the Euro zone, second quarter GDP data due for release tomorrow. With data expected to reveal that Germany and France will aid the Euro zone economy in moving into expansion phase after an unprecedented six quarters of crisis-driven contraction, a further increase in the single currency’s demand against the majors cannot be ruled out. Apart from domestic releases, events unfolding on the other side of the Atlantic are also expected to hold market interest.

Other Currencies – Highlights

There seems to be no respite for the Australian economy. With domestic economic fundamentals failing to provide any positive upturn, the National Australian Bank’s data out early morning today revealed that business morale in Australia deteriorated for July, reaching its lowest level in eight months. Surveys showed that weakness in sectors, from finance to property and construction, outweighed improvement in conditions for retail, mining and recreation. With the gloom surrounding the nation’s growth prospects offering no sign of receding, the Australian Dollar plunged against its US counterpart in today’s trading session. Market players are expected to keep a tab on consumer inflation expectations due this Thursday, considering its influence on the Reserve Bank’s of Australia’s future monetary policy stance. With no major economic releases apart from the inflation expectations data featuring in this economic calendar, trading sentiment in the Aussie Dollar is likely to be influenced by developments taking place across the globe for further cues during this week.