Global Economies on the Mend

Yesterday’s macro data has added to the recent upbeat sentiment, with a recovery fairly visible across major economies including the UK, US and to a certain extent, the Euro zone. While consumer confidence in the UK climbed to the highest level since October 2009, the second quarter US GDP data comfortably beat earlier estimates. Meanwhile, the Euro zone and Japan continue to provide mixed signals, indicating that further efforts are required to attain a broad level of economic revival. At home, today’s Nationwide house prices and mortgage approvals data have reinforced views of a recovery in the housing market. Later today, a slew of Euro zone and US economic releases are expected to grab market attention for further direction.

Pound Sterling – UK Markets

The Pound failed to gain traction against the US Dollar yesterday, as buoyant US economic data strengthened the case for an early tapering of QE3. However, Sterling managed to move higher against the Euro following dismal German jobs data. Additionally, the BCC raised its 2013 economic growth forecast on the UK. Meanwhile, in a noteworthy development, British lawmakers voted down Prime Minister David Cameron’s plan for military strikes against Syria, thereby ending the possibility of a direct British intervention in any US led action against Syria. In today’s trading session, the Pound has limited its downside against the greenback, as the GfK consumer confidence report showed that consumers in the UK are more confident about the economy. Echoing recent improving economic fundamentals, house prices in the UK, as reported by Nationwide, continued to rise for August. The mortgage approvals data just released has also indicated healthy loan demand for August. With a relatively light weekly domestic economic calendar coming to an end, market participants will focus on next week’s BoE policy meeting and a slew of important macro releases for further direction to Sterling against the majors.

US Dollar – US Markets

The greenback moved higher against most of its peers yesterday after a string of upbeat economic data raised expectations of the Fed slowing down its asset purchase programme in September. While the revised second quarter GDP data revealed a faster pace of economic expansion than earlier projected, the number of people seeking employment benefits also fell more than forecast, indicating that effects of higher taxes and government budget cuts are beginning to fade. However, two Fed officials yesterday offered contrasting views on the Fed’s September tapering plan. The US Dollar is looking for direction against the majors this morning, as investors await a barrage of important European economic data for further cues to risk appetite. Market participants will also keep an eye on personal income and spending data in the US later today to ascertain whether the recent improvement in the broader economy actually trickled down to the consumer base. The Chicago PMI and the final reading of the Reuters/Michigan consumer sentiment will also gain modest market interest. Going forward, investors await next week’s non-farm payrolls data which will provide firm indication of the Fed’s next policy move.

Euro – European Markets

An unexpected rise in German unemployment for August led the common currency to trade under pressure against both the US Dollar and the Euro yesterday. The failure of the Euro to gain upside against the greenback can also be attributed to the positive US economic data which raised prospects of the Fed scaling back its QE3 programme next month. In the meantime the German Chancellor, Angela Merkel, has warned that economic turmoil will return to the Euro zone if her crisis handling policies are discontinued after the German elections. Meanwhile, the single currency is trading mostly flat against the majors in today’s trading session despite an unexpected decline in monthly retail sales in Germany. Market participants will keep a tab on Euro zone consumer price inflation, unemployment rate and sentiment indices, scheduled for release later today, for further direction. These numbers are expected to be broadly encouraging and should provide some relief to the Euro against the majors. Looking ahead, the ECB’s policy meeting next week will shed light on the central bank’s outlook towards signs of recent economic recovery.

Other Currencies – Highlights

The Canadian Dollar slipped against the US Dollar yesterday following better than expected US economic data which boosted the case for the Fed to start tapering in September. Additionally, a drop in crude oil prices owing to easing worries of an imminent attack on Syria also weighed on the performance of the Canadian Dollar. In today’s trading session, the Canadian Dollar is trading broadly unchanged against the greenback ahead of the second quarter GDP data, scheduled later today, which is likely to show that the nation’s economy contracted in June the most since 2009. Also, important economic releases across the globe will determine traders’ sentiment in today’s trading session. Against the backdrop of a deteriorating domestic economy, the Bank of Canada’s policy meeting scheduled next week will be keenly followed to ascertain if the central bank resorts to further easing measures to spur growth.