Markets Set for the Carney Show

Mark Carney’s first speech as the BoE Governor later today should hold market interest and could influence trading in Sterling. Traders expect Carney to further push back rate hike expectations in order to prevent a rise in borrowing costs from undermining the economic recovery. Meanwhile, data earlier today revealed an unexpected drop in German consumer sentiment. However, yesterday’s data showed that US consumers appear more confident about their economy and has proved a shot in the arm for QE3 tapering supporters. Today’s pending home sales data will offer further food for thought to traders. Also, tensions in the Middle East are likely to weigh on investors’ minds.

Pound Sterling – UK Markets

The Pound slipped below the 1.55 mark against the US Dollar in the initial trading session yesterday, largely due to mounting tensions of an imminent US military strike in Syria in the aftermath of last week’s alleged chemical attack by the latter against its civilians. Sterling managed to recover later in the day, though upside was capped following the release of upbeat US consumer confidence data. The Pound-Euro pair was also under pressure yesterday on signs of improving economic fundamentals in Germany. In today’s trading session, the Pound has weakened against the greenback ahead of Mark Carney’s first policy speech as the BoE Governor in Nottingham. Markets expect him to reiterate his policy stance of maintaining interest rates lower for a longer duration despite the UK economic recovery gaining traction. Apart from the BoE Governor’s speech, CBI retail sales will be eyed by investors for further cues on the short term trend in the retail sector. Also, pending home sales data in the US and events unfolding in Syria are expected to drive market sentiment in today’s trading session.

US Dollar – US Markets

“Risk-off” sentiment returned to markets yesterday, as the US and its allies moved closer to a military strike against Syria in retaliation to the latter’s use of chemical weapons last week. However, after the initial sharp upward movement, the US Dollar pared its gains against the majors later in the day. On the macro front, the release of positive US consumer confidence data, which rose to the highest level in over five years, and a more than expected improvement in the Richmond manufacturing activity index supported the case of a partial withdrawal of the current stimulus measures in the near term. Meanwhile, John Williams, the President of the San Francisco Fed, opined that the timing of the central bank’s tapering of QE3 will depend on the economic outlook and not a set time plan. The US Dollar is trading broadly higher against the majors in today’s trading session, as ongoing tensions in the Middle East underpinned the demand for safe haven currencies. Along with developments taking place in Syria, traders will also keep an eye on the US pending home sales data later today to ascertain whether the recent rise in mortgage rates has affected the strength of the housing market recovery.

Euro – European Markets

The common currency strengthened against the US Dollar in the latter part of the day yesterday despite better than forecast US consumer confidence data easing speculation of an early tapering of QE3. Part of the gains in the Euro can be attributed to yesterday’s Ifo survey, which showed that German business sentiment rose to the highest level since April 2012. Meanwhile, two ECB officials yesterday reiterated the central bank’s current stance on monetary policy, while ruling out the possibility of an interest rate hike any time soon. The single currency is trading lower, albeit in a tight range, against the US Dollar in today’s trading session. Data out earlier today indicated that German consumer confidence unexpectedly declined for September despite the recent upbeat domestic economic data. With no major domestic economic triggers on radar today, market participants are expected to keep a tab on today’s US pending home sales data for further direction. Additionally, concerns in Syria may morph into an international crisis and could keep a tight lid on the upside potential of the Euro against the majors today.

Other Currencies – Highlights

The Australian Dollar weakened against its major peers this morning, as overall demand for riskier currencies waned amid mounting tensions over an imminent US attack on Syria. The lacklustre second quarter domestic construction activity data released earlier today indicated a slowdown in the housing sector and added to the overall weakness in the Aussie Dollar against the majors. To add to the woes John Edwards, a board member of the Reserve Bank of Australia, stated yesterday that the Aussie Dollar needs to weaken further in order to cushion the Australian economy from an unprecedented downturn in mining investment in the country. Going ahead, new home sales and private sector credit data later in the week, along with events in the Middle East, will prove vital in determining the direction of the Australian Dollar in the near future.