Brothers in Arms

Although the BoE and the ECB maintained the status quo in their monetary policy meetings yesterday, both Mark Carney and Mario Draghi made their presence felt by suggesting an accommodative policy stance for the foreseeable future, leading the Pound and the single currency to nudge below key support levels against the greenback. Hogging the limelight today is the crucial US non-farm payrolls report. Although influential policymakers in the recent past tried to soothe market nerves about an early exit from QE3, an upbeat reading in today’s session is likely to further increase the appeal of the greenback. Meanwhile, German factory orders data due later today is also expected to attract modest market attention.

Pound Sterling – UK Markets

Although the MPC decision was along expected lines, with the BoE keeping its interest rate and size of asset purchases unchanged in its policy meeting, Mark Carney’s forward guidance came as a bolt out of the blue, leading the Pound to sharply backtrack against its major peers and nudge below the 1.51 mark against the US Dollar yesterday. The BoE indicated that expectations of rising interest rates weren’t warranted by the recent developments in the economy and could weigh on growth, a clear hint that the BoE is unlikely to tighten its monetary policy for some time to come. Sterling has continued to trade under pressure against the majors this morning. In the absence of major domestic news today, the US non-farm payrolls data is expected to garner market attention for further cues to risk appetite. Going forward, markets are looking to next week’s NEISR GDP estimate to gain a clearer picture of the nation’s performance in the second quarter of 2013. Industrial and manufacturing production, as well as BRC retail sales data due next week, will provide new numbers for evaluating the nation’s upbeat macro profile.

US Dollar – US Markets

With US markets closed yesterday on account of Independence Day, news flows emanating from the other side of the Atlantic played a pivotal role in charting the trend in the US Dollar. Dovish comments from both the BoE and the ECB proved to be a blessing in disguise for greenback investors yesterday. Meanwhile, the US Dollar is looking for direction against the Euro today, as market participants have adopted a cautious approach ahead of US non-farm payrolls data - the next big market mover - scheduled for release later today. Markets anticipate a slower pace of job additions for June while the unemployment rate is likely to tick marginally lower. In line with Wednesday’s encouraging ADP employment and initial jobless claims data, an upbeat view from today’s report about the US labour market outlook will further strengthen market belief that the Fed might alter its pace of bond purchases sooner than anticipated. Any upside surprises from today’s report should further help the US Dollar to move higher against the majors. For further hints about the probable timing of an exit from QE3, the minutes of the FOMC meeting due next week will grab market focus.

Euro – European Markets

The single currency came under pressure and nudged briefly below the 1.29 mark against the US Dollar in yesterday’s trading session after the ECB Chief vowed to keep interest rates at present or lower levels for an extended period of time, a clear signal that the central bank stands ready to take further measures should the situation demand. Additionally, peripheral economies continue to highlight the fragile state of the Euro zone economy. In the midst of turmoil in Portugal’s political arena, Spain witnessed a rise in its borrowing costs at a long term bond auction held yesterday, amid fears that the Euro zone could be heading back into the debt crisis. Meanwhile, in an effort to quell concerns surrounding the political uncertainty, the Portuguese Prime Minister indicated that he has found a “formula” to maintain government stability. Any new developments taking place on this front are expected to gain market attention. In another incident, the IMF urged Italy to make urgent reforms in order to tackle growing fiscal and unemployment woes. In today’s trading session, apart from German factory orders data, the US jobs report is expected to hog the limelight.

Other Currencies – Highlights

The Swiss Franc declined against the Euro yesterday after Mario Draghi indicated that the ECB will continue with its accommodative monetary policy stance for an extended period of time. However, the Swiss Franc is range bound against its Euro counterpart in today’s session. On the domestic front, data revealed that on an annual basis, the consumer price index in Switzerland declined less than anticipated for June. However, with the deflationary trend still persisting in the nation, the Swiss National Bank is likely to continue with its current monetary policy stance. In today’s trading session, market sentiment in the Swiss Franc will be governed by events unfolding in overseas markets, especially the US. For the forthcoming week unemployment, retail sales and industrial production data will be keenly eyed, which is expected to provide further cues on the pace of the nation’s economic recovery.