UK Economy in the Pink

Reports released just now have indicated that the dominant services sector of the UK economy expanded at a much faster pace for June. This supports the view of the recent improving landscape of the UK economy and presents a strong case for Britain to register robust performance for the second quarter. Meanwhile, with the ADP employment report due later today expected to show an improvement in the US labour market, a partial withdrawal of QE3 in the near future cannot be ruled out. Across Europe, renewed concerns in Portugal and Greece have kept Euro investors on the edge. Additionally, services PMI has confirmed contraction in the Euro zone for June, echoing weak services sector activity data in China released earlier today.

Pound Sterling – UK Markets

Although yesterday’s data showed that construction activity in the UK rose for June at the strongest pace since May 2012 primarily bolstered by increased residential building activity, the Pound nudged below the 1.52 mark against the greenback, as data missed market expectations. However, the Pound has staged a recovery against the US Dollar this morning, as data just out has revealed that the services sector activity in the UK continued to expand for June. Meanwhile, the BRC report released overnight revealed that the shop price index in the UK declined for June at its fastest pace since February 2007, suggesting that retail sales might register decent growth this month. With a lacklustre day ahead in terms of domestic macro news, markets will set their focus on tomorrow’s BoE policy meeting for further direction to Sterling against the majors. Although the odds are stacked against the BoE for inducing fresh stimulus amid improving economic fundamentals, all eyes will be on Mark Carney’s first vote as the new BoE Governor for gauging his stance on the central bank’s future monetary policy.

US Dollar – US Markets

Despite the US economy gathering momentum, comments from the Fed Governor and the New York Fed Chief yesterday suggested that the central bank might continue with its accommodative monetary policy in the near future. Although influential policymakers continue to quell market fears surrounding uncertainty over the Fed’s future policy stance, the US Dollar registered gains against the Euro and the Pound yesterday. Markets seem to have adopted a cautious approach ahead of the ADP employment data due later today which is expected to reveal a substantial improvement in job market, thereby strengthening the case for a partial withdrawal of QE3. Additionally, yesterday’s report provided further evidence that the nation’s manufacturing activity is treading the recovery path, as figures showed that factory orders rose for May amid a significant rise in commercial aircraft demand. In today’s trading session, dismal Chinese and Euro zone services activity data has limited the downside in the US Dollar against the Euro. Going forward today, apart from the ADP employment report, services PMI, initial jobless claims and trade balance data in the US will grab market focus for determining risk appetite.

Euro – European Markets

The Euro suffered multiple setbacks yesterday, leading the common currency to nudge close to the 1.30 mark against the US Dollar. The resignation of Portugal’s foreign minister, the second minister to resign in a 24 hour period, has threatened the future of the government. Additionally, reports that Euro zone officials have given a three day ultimatum to Greece to reach an agreement with Troika lenders over its bailout conditions in order to secure the next tranche of aid has further aggravated matters for the Euro. Upbeat US factory orders data also played its part in denting the appeal of high yield currencies yesterday. In today’s trading session, services PMI data across major European economies failed to inspire confidence among market participants, leading the Euro to trade under pressure against the majors. With no major domestic economic releases apart from the Euro zone retail sales data, risk sentiment in today’s trading session is likely to be influenced by news flows emanating from the other side of the Atlantic. Additionally, the ECB press conference, following the interest rate decision, will remain a significant event risk in tomorrow’s trading session.

Other Currencies – Highlights

The Australian Dollar has backtracked against its US counterpart this morning following dovish comments from the Reserve Bank of Australia Governor. Although the Reserve Bank of Australia kept its key cash rate unchanged in its monetary policy meeting yesterday, the central bank Governor, Glenn Stevens, indicated today that it would take steps required to assist the transition from a mining boom period including a lower exchange rate, if required. The mostly upbeat economic data in Australia, including services activity and trade balance, failed to provide respite to the Aussie Dollar. On account of a light domestic economic calendar today, external cues are likely to have a bearing on the near term trend in currency markets. Meanwhile, markets are expected to pay a modest attention to building approvals and construction PMI data in Australia due over the next two trading sessions for further insights.