The latest set of mixed macro data from the US has highlighted an uneven economic recovery, raising doubts over the Fed’s tapering plans in September. Against this backdrop, today’s consumer confidence data will hold significance in determining risk appetite. Meanwhile, the global geopolitical environment looks tense, as the US accused Syria of using chemical weapons against its citizens, raising the possibility of retaliatory military action against the country.
Across Europe, today’s German Ifo sentiment indices showed improvement for August, adding to the recent upbeat data emanating from the largest Euro zone economy. On the domestic front, with no major economic data due today, Sterling is likely to take direction from overseas events.
Pound Sterling – UK Markets
The British economy continued to take steps towards sustained economic recovery, with Friday’s second quarter GDP data reinforcing this belief. Better than expected exports and gross fixed capital formation contributed to robust growth in the second quarter. The only blip was an unexpected decline in home loans for July as reported by BBA. Meanwhile, speaking at the annual Jackson Hole Symposium, the BoE Deputy Governor, Charlie Bean, opined that the central bank’s pledge not to raise interest rates until unemployment falls to 7% will help in aiding consumer and business confidence.
Meanwhile, the Pound is trading lower against the majors in today’s trading session, replicating yesterday’s lacklustre trading session, amid a lack of domestic macro indicators. Market participants are looking forward to the BoE Governor’s speech scheduled tomorrow to gain insights to his outlook on the economy. Also, tomorrow’s Nationwide house prices and CBI retail sales data will be keenly eyed to ascertain trends in the broader economy. In the meantime, the US consumer confidence data and events unfolding in Syria are expected to influence trading sentiment in today’s trading session.
US Dollar – US Markets
After trading in a tight range yesterday, the US Dollar has moved higher against the majors this morning. However, upside in the greenback looks limited, as recent domestic economic data has eased concerns surrounding an early withdrawal of QE3. Following last week’s disappointing new home sales numbers, yesterday’s data on durable goods orders revealed a more than expected decline for July, raising questions over the sustainability of the recent US recovery. However, US policymakers at the Jackson Hole Symposium once again reiterated that the Fed would scale back its asset purchases later this year, if the economy continued to improve.
Going forward, market sentiment today is likely to be determined from the US consumer confidence data, which is likely to show deterioration for August. Additionally, the S&P/Case-Shiller home price index and Richmond Fed manufacturing index are expected to grab modest market attention today. Traders are also keeping a close watch on developments taking place in Syria, as any further escalation in tensions between Syria and western countries could result in subdued risk appetite among market participants.
Euro – European Markets
On Friday, the single currency moved higher against the US Dollar and briefly touched the 1.34 mark, as dismal new home sales data in the US eased concerns surrounding a premature tapering of the current stimulus measures. Additionally, upbeat Euro zone consumer confidence and in line German second quarter GDP data supported the Euro. However, the common currency came under pressure yesterday amid political uncertainty in Italy after Silvio Berlusconi’s party threatened to bring down the Italian Prime Minister’s government.
In today’s trading session, the common currency has moved higher against the Pound, supported by buoyant German economic data. Data earlier today revealed that the Ifo business confidence index in Germany improved more than expected for August, further adding to the notion that the Euro zone’s largest economy is on the mend. In the meantime, at the Jackson Hole Symposium, the ECB policymaker, Ewald Nowotny, indicated that the recent “stream of good news” from across Europe has eliminated the need to reduce the already record low interest rates. With a light European economic calendar today, speeches by ECB policymakers and US macro data will influence market sentiment.
Other Currencies – Highlights
The Kiwi Dollar has weakened against the US Dollar this morning despite lingering uncertainty over whether the Fed will begin tapering its bond purchases next month following the latest set of weak US economic data. The weakness in the New Zealand Dollar can be attributed to the lacklustre domestic economic data. A report released on Sunday revealed that New Zealand’s trade deficit touched a ten-month low for July, as exports declined more than expected while imports surged higher. Low yield currencies are trading higher as markets remain jittery on the prospects of probable US military action against Syria after the US blamed the Syrian government for the chemical attack on its citizens.
With no major domestic economic data on tap today, news flows emanating from both sides of the Atlantic, particularly the US consumer confidence data, will be eyed by traders for further direction to risk appetite. Also, market participants await New Zealand’s business confidence and building permits data during the course of the week for further cues.