British Economy on Stronger Footing

UK GDP data just out has confirmed the recent trend of buoyant macro indicators and points towards healthy economic growth. Meanwhile, today’s data from BBA showed that appetite for mortgages remained upbeat despite rising borrowing costs. Against this backdrop, consumer confidence data due next week will give further insights into the UK consumers’ outlook on the economy. The Euro zone continues to take strong strides towards economic revival as indicated by yesterday’s upbeat manufacturing PMIs and German GDP released today. Across the Atlantic, mixed macro data yesterday has raised questions on the quantum of tapering the Fed will do by year end. A slew of global economic releases next week are expected to keep market participants on their toes.

Pound Sterling – UK Markets

Today’s GDP data has reaffirmed the belief that the UK’s economy continued to gain momentum in the second quarter. The overall economy was supported by a marked recovery in Britain’s exports and a pronounced growth in gross fixed capital formation in the second quarter. Meanwhile, just out ,the BBA report on mortgage approvals has shown a marginal unexpected decline in home loans. The Pound, which traded under pressure against the US Dollar yesterday, has recovered from yesterday’s lows against the greenback in today’s session after the release of the positive economic data. In the meantime, global news flows including US new home sales and the Euro zone consumer confidence are expected to influence trading in the Pound in today’s session. Investors will look forward to next week’s Gfk’s consumer confidence and CBI’s retail sales data to gauge the domestic consumer sentiment.

US Dollar – US Markets

The US Dollar traded higher albeit in a tight range against the Pound yesterday amid broadly mixed US economic data. Manufacturing PMI for August showed the manufacturing sector is improving, though at a slower pace than expected. Initial jobless claims rose more than expected, although the figure was still near six-year lows, thereby offering no major concerns on the labour market front. The US Dollar, however, weakened against the single currency as better than expected Euro zone manufacturing PMIs weakened demand for the greenback. Meanwhile, Richard Fisher, a noted hawk has said that the US economy is “moving in the right direction” and is strong enough for slowing the current pace of asset purchases. Also, Jacob Lew, the US treasury Secretary, has once again reiterated his call for Congress to raise the government’s debt limit in order to support the economic revival. In today’s trading session, the US Dollar is trading lower against the majors after better than expected UK and German GDP data signalled a robust growth environment across the Atlantic. Later today, the US new home sales data is expected to grab market focus. Also, US GDP and consumer confidence data next week will drive risk appetite.

Euro – European Markets

The Euro zone economy looks to be finally on track towards a sustained economic recovery after the release of yesterday’s better than expected manufacturing and services PMI data, lifting the common currency against its peers yesterday. However, the Euro has been unable to maintain its upward momentum this morning after German GDP data failed to spring any positive surprises and came in line with market expectations. Nevertheless, broad data suggests an overall improvement in German economic conditions. Against the backdrop of the advancing economy, consumer confidence data scheduled for release later today is expected to show an improvement in sentiment towards the economy. Also, investors will keep a tab on releases across the Atlantic for further direction. Looking ahead, a spate of significant economic releases from the peripheral Euro zone economies is likely to test the recent upbeat mood in the region. Additionally, the German and Euro zone unemployment and consumer price inflation data among others will be eyed for further direction on risk appetite.

Other Currencies – Highlights

The Canadian Dollar continues to weaken against its US counterpart, weighed down by weaker-than-anticipated sales data released yesterday. Flooding in southern Alberta and a construction strike in Quebec led to a decline in retail spending in June as consumers pulled back purchases. Earlier in the week, wholesale sales showed a greater-than-expected downturn for June. The dismal sales print reflects a decline in the jobs market, indicating a broader slowdown in economy and further exerting pressure on the currency. Consumer price inflation data due later today will be keenly followed by market participants and influence trading sentiment in the Canadian Dollar. Also next week’s second quarter GDP data is expected to gain market attention. Furthermore, a slew of economic data releases from both sides of the Atlantic will be in focus and sway market sentiments during the week.