UK Flatters to Deceive

The recent slew of positive economic data had raised hopes of an upswing in the UK economic growth. Whilst second quarter GDP numbers released this morning were in line with official estimates, there had been an air of anticipation throughout the media this morning that UK GDP might actually exceed these estimates. However it did not. Whilst the UK economy is gaining momentum growth of 0.8% or higher has not been achieved and therefore the economy still lags below the Chancellor’s original estimates from the end of 2012 Therefore the Pound has failed to elicit a positive response against the majors following this release. Meanwhile, following upbeat PMI releases across Europe yesterday, German Ifo sentiment indices released earlier today revealed an improved picture for July, thereby quelling concerns over the region’s growth prospects. With a light European economic calendar today, the US durable goods orders and initial jobless claims data due later in the day will provide further direction to currency markets.

Pound Sterling – UK Markets

In the aftermath of the recent upbeat set of domestic releases across sectors ranging from services and manufacturing to retail and housing, data just out has revealed that the UK economy registered a 0.6% sequential growth for the second quarter of 2013, in line with wider market expectations. However, despite rumours that had circulated prior to this release, the levels of growth predicted by George Osborne at the end of 2012 have yet to be achieved. Consequently the Pound has weakened against the majors in today’s trading session. The focus now squarely shifts to the BoE meeting due next week for gauging how the new Governor plans to provide further impetus to the economic recovery. Moreover, leading indicators continued to offer evidence of buoyancy in the economy. Yesterday’s survey from the CBI supported the case of the nation’s manufacturing sector gaining momentum, as industrial trends survey indicated that orders improved for July, reaching its highest level since December 2012. With little in store in terms of macro news today, trading sentiment is likely to take direction from news flows emanating from the US.

US Dollar – US Markets

Although the US Dollar nudged lower against the Euro following upbeat set of PMI releases across Europe, the greenback recouped most of it losses in yesterday’s trading session following upbeat US economic releases and amid rumors of a German credit rating downgrade. On the domestic front, data showed that new home sales in the US surged more than anticipated for June to reach the highest level since May 2008. Additionally, manufacturing data in the US surprised market participants on the upside. This has again provided a twist to the recent market speculation of a continuing QE3 in the US. For further insights into the pace of the nation’s recovery, durable goods orders, Kansas manufacturing activity and initial jobless claims data due later today will attract market focus. With last week’s jobless claims numbers suggesting that the labour market recovery is gaining traction, today’s figures ahead of the non-farm payrolls report due next week will be closely scrutinised, given its wider implications on the Fed’s future policy moves.

Euro – European Markets

The initial euphoria surrounding the Euro region’s growth prospects following upbeat set of PMI releases soon faded amid rumours of a downgrade to Germany's sovereign debt rating, denting market sentiment and leading the common currency to pare most of its gains against the US Dollar in yesterday’ trading session. Yesterday, manufacturing and services PMIs across major European economies surpassed market expectations for July, with Germany, the region’s largest economy, leading the broader Euro zone manufacturing index to move into the expansion phase for the first time since January 2012. This encouraging performance has provided a breather for the ECB Chief. Following the upbeat PMI data, the German Ifo survey released earlier today has revealed an improvement in business sentiment for July. Going forward today, a slew of macro data from the US has the potential to alter dynamics in the single currency against the majors.

Other Currencies – Highlights

The Reserve Bank of New Zealand held its benchmark interest rate unchanged at 2.5% in its monetary policy meeting held overnight. Moreover, the central bank Governor, Graeme Wheeler, in his post meeting press conference, struck a hawkish tone as he ruled out any rise in interest rates this year and further hinted that the central bank might remove monetary stimulus in the near future. In reaction to the positive assessment of the economy, the Kiwi Dollar rallied against the greenback in today’s trading session. On account of a light economic calendar ahead, traders are expected to set their sights on news flows emanating from the US for further direction to risk appetite. Moreover, with building permits being the only major economic data due in next week’s calendar, trading sentiment in the New Zealand Dollar is likely to be governed by events unfolding across the globe.