Sterling Maintains Buoyancy

Despite Euro zone unemployment hitting fresh highs and buoyant US manufacturing PMI, renewed optimism following mostly upbeat manufacturing PMI releases across major European economies helped the single currency to trade on a firmer footing yesterday. Meanwhile, with investors remaining on the sidelines amid a lack of decisive news in today’s trading session, factory order numbers in the US are expected to grab market focus for further cues to risk appetite. At home, the feel good factor has continued for Sterling, as data just out has shown that construction PMI improved for June, albeit less than expected, thereby mirroring buoyancy recorded by manufacturing PMI and mortgage approvals data released yesterday.

Pound Sterling – UK Markets

Mark Carney formally took over as the Governor of the BoE on Monday and was greeted with improving numbers in the housing sector and manufacturing activity that was the highest in over two years. The positive data has further reinforced belief that the UK economy is showing tentative signs of recovery over the past few months, leading the Pound to sustain the 1.52 mark against the greenback. Data revealed that mortgage approvals climbed more than expected to reach the highest level in three years for May. Sterling has continued to trade on a firmer footing against the US Dollar this morning, as data just released has revealed that the construction sector continued to expand for the second consecutive month for June. Following upbeat economic releases the British Chambers of Commerce, in its quarterly economic survey, indicated that the UK economy strengthened for the second quarter of 2013, aided by a rise in services related exports and improved business confidence. Against the backdrop of improved services exports, markets keenly await the services PMI data due tomorrow. Additionally, the BoE Deputy Governor, Paul Tucker’s speech due today will grab market focus.

US Dollar – US Markets

Data released yesterday revealed that manufacturing activity in the US moved into the expansion phase for June after an unexpected dip recorded for May, thereby easing worries surrounding growth in the nation’s manufacturing sector. The optimism surrounding this upbeat report was tempered to some extent by dismal construction spending data in the US for May. Market focus has now shifted towards the ISM services PMI data due tomorrow to form a clearer picture of economic performance in the second quarter of 2013 following lacklustre first quarter GDP numbers. With the greenback trading in a tight range against the Euro in today’s trading session, markets look forward to factory orders data scheduled for release later today for further insights into the manufacturing sector recovery. With last week’s durable goods orders data surpassing market estimates, it remains to be seen whether today’s report also echoes similar results. Any positive surprises will further strengthen calls for a partial unwinding of current stimulus measures in the near term. Apart from the domestic data, events unfolding in global markets could also sway market sentiment.

Euro – European Markets

Worries surrounding the European economy ebbed a little, as manufacturing output in the Euro-area contracted less than initially estimated for June, providing some support to the Euro against the greenback yesterday. However, the Euro zone unemployment rate continued to rise for May, though it came in lower than market expectations. Meanwhile, consumer price inflation in the Euro zone, showing an accelerating trend for June and some signs of improvement in the broader economy, could build a case against lowering the benchmark interest rate in the ECB’s policy meeting due later this week. Markets will keenly eye the meeting to decipher how the central bank plans to tackle the looming employment issues in the region. With little on the European economic calendar today, traders await tomorrow’s retail sales data in the Euro zone for further cues. With last week’s German retail sales and Euro zone confidence indices providing encouraging signs, it remains to be seen whether tomorrow’s data also offers upbeat results. Additionally, traders are expected to keep a close watch on services PMI data due tomorrow, especially after yesterday’s robust manufacturing PMI releases.

Other Currencies – Highlights

The Japanese Yen is trading marginally lower against the US Dollar and the Euro in today’s trading session. Data released earlier today revealed that the monetary base in Japan rose substantially for June from a year earlier, aided by the Bank of Japan’s unprecedented monetary easing measures to overcome the nation’s long bout of deflation. The commitment of the central bank to tackle the nation’s woes seem to be yielding results, as yesterday’s Tankan survey revealed that business sentiment among large manufacturers in Japan improved significantly for the second quarter of 2013, with the index moving into positive territory for the first time in the last seven quarters. With an apparently lacklustre week ahead in terms of domestic macro releases, trading sentiment in the Japanese Yen is likely to be governed by news flows emanating from overseas markets. Meanwhile, a speech from the Bank of Japan Governor, Haruhiko Kuroda, due this Thursday is expected to garner market focus for insights into the nation’s economic outlook and the central bank’s perspective on future policy stance.