Sterling’s Feel Good Factor Continues

Market participants increased their exposure to high yield currencies, as dire US macro data released yesterday watered down speculation of the US Fed scaling back its unprecedented bond purchases in the near term. The Richmond manufacturing and house price index data scheduled for release later today will attract market attention for further updates. Moreover, the Euro zone consumer confidence report due later today will be keenly tracked for early insights into tomorrow’s manufacturing and services PMIs across Europe. In the UK, data just out has revealed that the BBA mortgage approvals continued to climb for June, further corroborating that the nation is poised to register buoyant performance for the second quarter.

Pound Sterling – UK Markets

Despite a lack of decisive domestic economic news, the Pound breached the 1.53 mark against the US Dollar in yesterday’s trading session broadly on the belief that a weak US recovery as suggested by yesterday’s dismal macro indicators might compel the US Fed to continue with its easy monetary policy measures. Moreover, the British Prime Minister, David Cameroon, hinted that a reduction in government taxes was possible if the economy continued to improve. However, Sterling lost ground against its European counterpart yesterday amid a rise in demand for riskier currencies. In today’s session, Sterling has limited its downside risks against the greenback, as the BBA report just out has revealed that mortgage approvals in the UK steadily rose for June, providing further evidence that the BoE’s FLS scheme continues to play a pivotal role in lowering borrowing costs and supporting demand. In the midst of no major domestic cues today, Sterling is likely to monitor news flows emanating from overseas markets for further direction to currency markets.

US Dollar – US Markets

The US Dollar retreated against the Euro and the Pound yesterday following a disappointing set of domestic macro releases. Riskier currencies got a boost in anticipation that the US Fed might continue with its ultra loose policy stance for a longer than anticipated period amid a weak US economic recovery. Data revealed that economic activity in the Chicago area improved at a slower than expected pace while existing home sales unexpectedly declined for June. With yesterday’s dismal reports once again casting doubts over the recent optimism surrounding the nation’s recovery prospects, markets keenly await the Richmond manufacturing activity index and the house price index scheduled for release later today for gauging the strength of the housing and manufacturing sectors. Although today’s reports are expected to reveal an improvement, any negative surprises will further dent the safe haven appeal of the greenback against the majors. Apart from the domestic economic releases, events unfolding in Europe and the Chinese manufacturing PMI due early morning tomorrow will prove decisive for determining the near term market sentiment.

Euro – European Markets

On account of a light European economic calendar yesterday, news flows emanating from the US played a decisive role in charting the single currency’s trend against the majors. A notable shift in risk appetite due to lacklustre US macro data helped the single currency to register gains against the US Dollar yesterday. However, the common currency is trading range bound against the greenback today. Going forward, market participants are expected to keep an eye on the Euro zone consumer confidence data today which is expected to show an improvement for July. This coupled with receding fears of an early exit of QE3 in the US should help the Euro to limit its downside against the US Dollar in today’s trading session. Additionally, with last week’s Spanish bond auctions providing evidence that the nation could meet its debt requirement, it remains to be seen whether today’s bill auctions also provide a reason for cheer. Markets are also expected to keep a tab on the US macro data as well as China’s manufacturing PMI due early morning tomorrow for further insights into the global economic recovery. However, the manufacturing and services PMIs across the major European economies due tomorrow remains the key trigger for the Euro against the majors.

Other Currencies – Highlights

“Risk on” sentiment following dismal US macro releases has continued to propel the New Zealand Dollar higher against the greenback in today’s trading session. On the macro front, markets look forward to the trade balance report due later today which is expected to reveal a substantial expansion in surplus for June. Apart from the domestic data, China’s manufacturing PMI data due for release tomorrow will be gauged closely for determining recovery prospects in the world’s second largest economy. Markets are also expected to set their sight on the Reserve Bank of New Zealand’s monetary policy outcome due tomorrow. In the aftermath of weak PMI data released recently, it will be interesting to note what steps the central bank undertakes in order to revive the faltering economy.