Central Bankers to Step Forward

Traders brace themselves for an action packed week ahead as the US Fed, the ECB and the BoE get ready to deliver their monetary policy decisions. Although no major changes are envisaged during their respective policy meetings, market participants will keep a close watch on their comments for clarity over future stance. At home, today’s lower than expected mortgage approvals and consumer credit data had minimal impact on Sterling. With little on the European macro calendar today, US pending home sales and Dallas manufacturing data will provide direction to risk appetite.

Pound Sterling – UK Markets

Amid a lack of decisive triggers on Friday, the Pound traded in a tight range against both the US Dollar and the Euro. However, the Pound has nudged marginally higher against the greenback today, despite data just out revealing that mortgage approvals and net consumer credit in the UK rose less than expected for June. Moreover, Hometrack has reported that, on a monthly basis, house prices in the UK grew at a slower pace for July. Going forward today, the CBI reported sales data ahead of the Gfk consumer confidence data later this week will be keenly gauged for early insights into the nation’s retail sector strength for July. However, most market attention will remain focused on the BoE policy meeting scheduled for Thursday. Although the central bank is expected to adopt a wait and watch approach, BoE comments on forward expectations could prove decisive for the Pound during this week. Additionally, manufacturing and construction PMIs for July due later this week will shed some light on the nation’s third quarter performance.

US Dollar – US Markets

The US Dollar has continued to trade in a tight range against the Euro in today’s trading session, as traders remain on the sidelines ahead of the FOMC meeting commencing tomorrow. The better than expected Reuters/Michigan consumer confidence report, released on Friday, momentarily lifted the greenback against the Euro and Sterling, with broadly cautious prevailing market sentiment. In today’s trading session, markets are expected to keep a tab on pending home sales and Dallas manufacturing activity for further cues to risk appetite. With today’s economic data expected to gain modest market attention, a flurry of major economic releases during this week holds importance for gauging the timing of a partial withdrawal of QE3. The second quarter GDP numbers and non-farm payrolls data are expected to play a pivotal role in charting the trend of the US Dollar against the majors, since the US economic recovery remains the key bone of contention for the Fed’s future policy moves. The central bank’s policy meeting due later this week will also be closely watched and any volatility in the greenback cannot be ruled out.

Euro – European Markets

The single currency is hovering close to Friday’s lows against the US Dollar this morning. With global central bankers scheduled to meet later in the week to make near term policy decisions, traders have broadly shown restraint in today’s trading session. In a noteworthy development, Euro zone officials approved the payment of a €2.5 billion instalment to Greece, thereby providing some breathing space to the debt laden nation. With last week’s PMIs and sentiment indices across Europe offering some encouraging signs of revival, markets are expected to set their sights on a barrage of key economic data including Euro zone consumer confidence, Spain’s GDP, German retail sales, as well as the Euro zone unemployment report. This week’s economic releases are likely to provide some food for thought to the ECB Chief ahead of the monetary policy meeting due later this week. Although the ECB is expected to keep its powder dry, the addition of forward guidance to its tool kit and the post meeting press conference have the potential to influence risk appetite.

Other Currencies – Highlights

The Japanese Yen is trading on a firmer footing against both the US and the Euro in today’s trading session, as data released overnight revealed that annual retail sales in Japan registered a sharp rebound for June, thereby offering hope that consumer spending could underpin economic recovery going forward. In the midst of an improving economic landscape the BoJ Governor, Haruhiko Kuroda, indicated that the central bank’s unprecedented measures have been positively influencing financial markets and the economy and has fuelled a rise in inflation expectations. Against this backdrop the jobless rate and industrial production data, scheduled early morning tomorrow, as well as manufacturing PMI data due later this week, will be tracked closely for insights into the strength of the nation’s economic recovery. Apart from domestic releases, events unfolding in overseas markets will also prove crucial for the Japanese Yen’s demand against the majors during this weekly session.