Inflation Heats Up in the UK Sun

UK data just out has revealed that consumer price inflation moved further away from the BoE’s target for June. With the nation grappling with high inflation, markets keenly await the minutes of the last MPC policy meeting, due tomorrow, for further insights into the likely path to be followed by the central bank under the reins of the new Governor. Meanwhile, weak US retail sales data released yesterday reminded policymakers that an early withdrawal of the current stimulus measures could prove counter-productive for the economy. Going forward today, the US consumer price inflation and the ZEW sentiment indices in Germany and the Euro zone will prove decisive for risk appetite.

Pound Sterling – UK Markets

The Pound is trading below the 1.51 mark against the US Dollar in today’s trading session. Data just out has revealed that annual consumer price inflation in the UK climbed less than expected to 2.9% for June, away from the central bank’s 2% target. Persistent inflationary pressures are likely to prevent the BoE from embracing an accommodative stance in the immediate future. Meanwhile, MPC member Paul Fisher’s speech due later today ahead of the BoE minutes scheduled tomorrow will hold market interest for further insights on the monetary policy. The minutes also hold relevance for ascertaining the new Governor’s take on the current policy stance and high inflation that remains a legitimate threat for the economy. Additionally, labour market data due tomorrow will be keenly watched for gauging whether a recovery in the job market remained intact. With a seemingly lacklustre day ahead, Sterling is likely to monitor global cues for further direction against its major counterparts.

US Dollar – US Markets

Economic reports released in the US yesterday confounded traders about the state of the US economy. While the Empire state manufacturing report offered an upbeat view of the manufacturing sector, dismal retail sales has once again raised concerns over the state of the nation’s consumer led recovery. The US Dollar pared most of its gains against the majors following these reports. Meanwhile, with few Fed officials voicing concerns over a low inflation outlook, all eyes will stay focused on the consumer price inflation report due later today. Any easing of inflation will further strengthen the case for a continuation of QE3 in the near term. Additionally, with manufacturing and housing sectors providing some encouraging signs of revival, industrial production and NAHB housing market indices due later today will hold market interest for further clarity on the economic recovery. Although domestic economic releases hold importance in today’s trading session, the Fed Chief’s testimony scheduled tomorrow will decide whether the greenback could resume its uptrend after the last week’s soft patch.

Euro – European Markets

The single currency has nudged higher against US Dollar in today’s trading session ahead of the Euro zone and German ZEW sentiment indices data due later today which are projected to show an improvement for July. Although today’s encouraging set of economic data should provide some support to the single currency, gains might be limited, as traders remain wary amid ongoing turmoil in peripheral economies that threaten to engulf the core Euro zone economies. Market participants are also likely to keep a tab on today’s Euro zone consumer price inflation data which is expected to reveal that inflationary pressures remain well anchored for June, thereby providing enough room for the ECB to alter its monetary policy, if required. With growing clamour about an alleged scandal involving Spain’s Prime Minister, Mariano Rajoy, it will be interesting to keep an eye on the nation’s short term bill auctions scheduled later today. Apart from the domestic events, developments taking place in overseas markets are also expected to dominate the near-term market dynamics.

Other Currencies – Highlights

The minutes of the Reserve Bank of Australia’s latest monetary policy meeting released earlier today has temporarily put speculation of an interest rate cut at bay, providing a much needed fillip to the Australian Dollar against the majors. Policymakers believed that the current monetary policy stance is appropriate for the time being, given the exchange rate volatility due to events unfolding in the overseas markets. In the absence of major economic news, markets are expected to keep a tab on news flows emanating from global markets for further cues to risk appetite in today’s trading session. Meanwhile, with Westpac leading index and NAB business confidence index being the only major releases featuring on the nation’s economic calendar for this week, trading sentiment in the Aussie Dollar is likely to be influenced by external events, especially the US, during this week.