The Calm Before the Storm

Traders have begun the weekly session on a cautious note, as Fitch downgraded France’s top notch credit rating citing concerns over its debt burden and weak growth prospects. Furthermore, China continued to offer worrying signals, as data showed that economic growth slowed for the second quarter. In a rather quiet session ahead, US retail sales data due later today will be keenly eyed for further direction. Meanwhile, market participants brace themselves for a busy week ahead in the UK and the US, as a raft of key economic data could prove crucial for major currency pairs. In the midst of growing influence of monetary policies on currency markets, Ben Bernanke’s semi-annual testimony remains a significant event this week.

Pound Sterling – UK Markets

The Pound is trading marginally lower against the US Dollar and the Euro in today’s trading session, as investors seem to have adopted a cautious approach ahead of important economic events scheduled during this week. Meanwhile, Rightmove has reported that the average asking price for properties in the UK continued to rise for the seventh consecutive month for July, further highlighting the influence of the BoE’s FLS scheme. Going forward, markets are likely to keep an eye on upcoming domestic releases to gauge the trend for the Pound. Consumer price inflation scheduled for tomorrow is expected to tick higher for June. With inflationary pressures showing no signs of abating, all eyes will focus on the minutes from the BoE due later this week to ascertain how the new Governor plans to tackle burgeoning inflation fears and measures for assisting the economic recovery. Meanwhile, retail sales, public finances as well as labour market data due later this week are expected to provide insights into the nation’s second quarter economic performance.

US Dollar – US Markets

The US Dollar is trading on a firmer footing against the majors in today’s trading session amid concerns surrounding the global economy after data released earlier today indicated that China’s economy grew at a slower pace for the second quarter of 2013. Meanwhile, an unexpected deterioration in the US Reuters/Michigan consumer confidence index renewed concerns over the recovery prospects in the world’s largest economy. Retail sales data later today will be keenly gauged for further insights into the state of the consumer morale. Additionally, today’s Empire state manufacturing activity survey will set the stage for a flurry of regional manufacturing indices data due over the next two weeks. In a noteworthy comment, the St. Louis Fed Chief indicated that the central bank might need to maintain the pace of asset purchases, if inflationary pressures remain anchored. In this context, tomorrow’s consumer price inflation data ahead of the Fed Chief Ben Bernanke’s semi-annual testimony due later this week will be closely watched for gauging the central bank’s prospective monetary policy stance.

Euro – European Markets

In an another blow to the Euro zone economy, Fitch Ratings demoted its credit rating on France, the region’s second largest economy, to “AA+” from “AAA” and maintained a “Negative” outlook citing uncertain growth prospects and the government’s growing debt burden. Adding to these woes, data released on Friday revealed that industrial production in the Euro zone declined for May. The single currency backtracked against the US Dollar in Friday’s trading session following dismal reports. Meanwhile, in a bid to avert further derailment of reforms, the three main political parties in Portugal have set a 21 July 2013 deadline to agree on a common pact. On account of a light economic calendar today, traders are expected to keep an eye on the ZEW economic sentiment survey in Germany and the Euro zone due tomorrow for further insights into the region’s precarious macro profile. Although no major economic indicators are due for release apart from the ZEW survey during this week, a barrage of macro releases from the US could prove decisive for the single currency’s demand against the majors. Additionally, developments taking place in the Portugal political arena as well as the G20 meeting will hold market interest.

Other Currencies – Highlights

Despite disappointing services PMI data in New Zealand, the Kiwi is trading on a firmer footing against the greenback in today’s trading session. The gains in the domestic currency can partly be attributed to China’s second quarter GDP data, which although showed a slowdown, matched market expectations. Meanwhile, today’s weak services PMI in New Zealand, coupled with softer manufacturing PMI reading released last week, has raised concerns over the state of the nation’s recovery. Against this backdrop, markets are expected to keep a tab on consumer price inflation and consumer confidence data due later this week for further insights into the strength of the economy. Moreover, events unfolding in the global arena will prove decisive for determining the trend in the New Zealand Dollar against the majors during this weekly session.