Markets Take a Breather

Reassuring comments that the US Fed will continue with its current accommodative stance amid high unemployment has found support, as data released yesterday revealed that the number of Americans claiming jobless benefits unexpectedly climbed to a two month high last week. Across Europe, yesterday’s weak Italian bond auctions and continuing political uncertainty in Portugal has kept investors on the edge. In today’s trading session, the US Reuters/Michigan consumer confidence and the Euro zone industrial production data will be keenly tracked for further cues to risk appetite. At home, the BoE minutes of the last policy meeting due next week will be closely scrutinised for gauging the new Governor, Mark Carney’s stance on key policy measures.

Pound Sterling – UK Markets

Despite a lack of decisive domestic economic news, the Pound was broadly firmer against the US Dollar yesterday, as dovish comments from the US Fed Chief dampened the demand for the greenback. Sterling has been able to limit its downside against both the Euro and the US Dollar in today’s trading session. With little on the UK economic calendar today, the Conference Board’s leading economic index will attract modest market attention for decoding the nation’s future economic trends. In the forthcoming week, a flurry of key domestic economic data including consumer price inflation, retail sales and employment data, along with the BoE minutes, will hold significance for Sterling’s near term trend against the majors. With the new Governor, Mark Carney, initiating forward guidance on the central bank’s monetary policy moves, the BoE minutes due next week will be keenly watched. All eyes will hover over the minutes for evaluating the new Governor’s take on the policy stance and how he expects to drive economic growth and insulate the economy from external shocks.

US Dollar – US Markets

Although the US Fed Chief’s dovish comments weighed on the greenback’s appeal against the majors yesterday, the US Dollar has managed to limit its losses in today’s trading session. Some profit booking in high yield currencies today cannot be ruled out. Meanwhile, macro indicators from the US released yesterday continued to portray a mixed picture of the economic recovery. Reports revealed that initial jobless claims unexpectedly climbed to a two month high last week, thereby suggesting the nation’s labour market recovery remains erratic. However, the US Treasury Department indicated that the nation delivered its biggest budget surplus in five years, supported by unprecedented fiscal tightening measures undertaken by the government. In today’s trading session, Reuters/Michigan consumer confidence data will be keenly eyed to offer further insights into consumer morale. Next week, apart from a barrage of key economic releases from the US, the Chinese GDP report for the second quarter is likely to prove the most crucial in determining near term market sentiment.

Euro – European Markets

The single currency is finding it difficult to sustain the 1.31 mark against the US Dollar in today’s trading session as markets await the Euro zone industrial production report later today, which is expected to show deterioration for May in sync with the recent dismal German data. Despite the recent lacklustre economic data from Germany suggesting that all is not well in the Euro region’s largest economy, S&P affirmed its “AAA” credit rating on Germany, citing the nation’s ability to absorb economic and financial shocks. However, events unfolding in peripheral economies continue to plague the region’s growth outlook. The recent rating downgrade by S&P negatively impacted Italy’s ability to raise debt at a long term bond auction held yesterday. Meanwhile, Portugal's international creditors have agreed to delay the next review of the nation’s bailout following requests from the Portuguese government in light of the political uncertainty in the country. In the absence of major economic releases today, apart from the Euro zone industrial production data, the single currency is likely to monitor global cues for further direction to risk sentiment.

Other Currencies – Highlights

The Australian Dollar is trading under pressure against the US Dollar in today’s trading session, as weak macro data continues to offer a grim picture of the Australian economy. Yesterday’s data revealed that the unemployment rate in Australia climbed for June to its highest level since September 2009, raising the probability of the central bank embarking on further interest rate cuts in the near future. To add to woes, a report earlier today showed that home loans in Australia rose less than expected for May. Against the backdrop of a worsening economic outlook, next week’s RBA minutes will grab market focus for decoding the stance that the central bank plans to adopt to reignite the ailing economy. To make matters worse, China’s finance minister indicated that China, Australia’s largest trading partner, might register a slower pace of growth this year. With the Chinese second quarter GDP data due early next week expected to reveal a slower pace of expansion, the Australian Dollar’s upside against the majors looks limited in the near term.