The UK economy continued to astound market participants by posting remarkable labour market numbers yesterday, even as the BoE policymakers voted unanimously to maintain interest rates and the size of asset purchases at current levels. Moreover, retail sales data just released hints towards improving consumer confidence, highlighting that the economy is truly on the recovery path.
Away from home, the Euro zone appears to have taken giant strides forward in recovering from its prolonged slump, after yesterday’s GDP numbers indicated growth in the region’s major economies. The US will release a host of important macro data today and is expected to influence trading sentiment.
Pound Sterling – UK Markets
The Pound has moved higher against the majors in today’s session, as data just released showed that retail sales continued to improve for July, largely supported by warm weather conditions seen during the previous month and significant discounts doled out by retailers. Sterling witnessed a similar trend yesterday, as it breached the 1.55 level against the US Dollar after the labour market report showed that the number of people in Britain claiming jobless benefits fell more than market forecasts. Although the unemployment rate remained unchanged at 7.8%, the drop in jobless benefit claimants sparked speculation of the unemployment rate falling below the BoE’s target of 7% sooner than expected, paving the way for an early tightening of monetary policy.
Meanwhile, the minutes of the last BoE meeting revealed that policymakers voted unanimously in favour of maintaining the current monetary policy stance. However, in the MPC’s vote on forward guidance, MPC member Martin Weale dissented, pointing out that linking policy rates to unemployment may undermine the central bank’s inflation-fighting credibility. With no domestic indicators on tab today, Sterling will eye global cues for further direction.
US Dollar – US Markets
Though the greenback traded in a tight range against the Euro yesterday, a raft of upbeat economic data from Europe and a relatively light domestic economic calendar limited the upside for the US Dollar. Gains in the greenback were further curtailed following dovish comments from St. Louis Fed President, James Bullard, who indicated that the central bank must seek more evidence of growth in the latter part of the year before tapering its bond purchase programme.
Going forward today, investors have their plate full in terms of a slew of economic releases. Yesterday’s producer prices data revealed that price pressure in the US remained benign for July. Against this backdrop, today’s consumer price inflation data is keenly eyed and will offer further insights into the price trend in the economy. Additionally, initial jobless claims and industrial production data will provide further insights into the overall economic progress made by the world’s largest economy and is likely to influence market sentiment. The regional manufacturing data from the New York and Philadelphia regions will also gain modest market attention in today’s trading session.
Euro – European Markets
The Euro zone economy, led by Germany and France, emerged from its prolonged recession by expanding 0.3% sequentially for the second quarter of this year. The upbeat GDP numbers followed a barrage of positive macro data over the past few weeks and comes as a relief for the battered Euro zone economy. Despite the buoyant economic data, the common currency failed to register meaningful gains against the US Dollar yesterday, as traders remained apprehensive with regards to the Fed scaling back its stimulus measures next month.
In today’s trading session, the common currency has climbed higher against the greenback. Some gains in the Euro can be attributed to a relatively dovish stance from a Fed official, who indicated that the central bank needs to wait and watch for more signs of economic growth before tapering QE3. With little on the European economic calendar today, market sentiment will undoubtedly be driven by the US inflation, initial jobless claims and industrial production data, among others. Also, traders keenly await tomorrow’s Euro zone consumer price inflation data for further hints on the effect of the ECB’s growth enhancing measures on the region’s price pressures.
Other Currencies – Highlights
The Canadian Dollar was broadly higher against the greenback yesterday after the St. Louis Fed President, James Bullard’s dovish remarks sparked market speculation that the Fed might continue with its QE3 programme for a longer than expected period. The receding price pressure on the economy as evident from yesterday’s US producer price index further strengthened this speculation.
Further direction to the Canadian Dollar in the next two trading sessions will be governed by the domestic existing home sales and manufacturing shipment data. A positive set of economic data will help in consolidating the Canadian Dollar against the majors. However, market participants are more likely to keep a tab on a string of US economic releases later today for further direction to risk appetite, given the close correlation between the two economies. Also, next week’s Canadian retail sales and consumer price inflation data will generate market interest.
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