Focus Across the Atlantic

The Fed is set to deliver its monetary policy decision today amid uncertainty surrounding the continuation of QE3. Investors will look forward to comments from the Fed Chief today for further clarity, especially given the recent set of mixed signals from the US. With a lot of ambiguous macro data recently clouding the economic outlook, the second quarter GDP report later today will be keenly eyed and could temper volatility in the session going forward. Across Europe, today’s Euro zone unemployment report has the potential to surprise on the upside, given upbeat German employment data released earlier today. With no major domestic macro releases today, Sterling is looking to overseas cues for further direction.

Pound Sterling – UK Markets

The UK economic landscape looks positive for now, as data released yesterday showed that optimism among British consumers was at a three year high in July. Recent data has indicated easing inflationary pressures, with UK shop price data, released overnight, falling at the fastest pace since January 2007 on account of heavy discounts and offers by retailers. However, the encouraging economic data failed to lift the Pound against the majors, as risk sentiment remained dampened ahead of the Fed’s policy decision due later today. After falling below the 1.53 mark yesterday, the Pound has failed to gain traction against the US Dollar in today’s trading session amid a lack of domestic economic indicators. All eyes are now focused on news flows emanating from the Euro zone and the US later today, especially the outcome of the FOMC meeting and the US second quarter GDP data, for determining Sterling’s movement against the greenback. Going forward on the domestic front, traders keenly await the BoE policy meeting tomorrow; any dovish signals with regards to policy measures could put further pressure on the Pound.

US Dollar – US Markets

The US Dollar is trading range bound against its major peers this morning, as investors preferred to avoid bets on high yield assets on account of looming uncertainty over the stance that the Fed might adopt in its monetary policy meeting later today. Yesterday’s set of economic releases in the US once again painted a mixed picture of the economy, with consumer confidence declining more than expected in July, while home prices climbed the most since March 2006 owing to an improving labour market. Although market participants expect the Fed to avoid altering its monetary policy stance today, Ben Bernanke’s press conference will be keenly followed for hints to the timing of QE3 tapering. Apart from the central bank’s decision, the second quarter GDP data will be closely watched for gauging the strength of economic progress in the world’s largest economy. Additionally, the ADP employment data is expected to set the stage for the non-farm payrolls report due on Friday. With investors having their plate full in terms of major economic releases today, volatility in the US Dollar against the majors in today’s trading session cannot be ruled out.

Euro – European Markets

Following last week’s PMI numbers, which suggested a revival in manufacturing activity in the Euro zone, a raft of economic data that followed provided further evidence of a change in fortunes for the battered Euro zone economy. The forward looking sentiment indices in Germany and the Euro zone showed improvement yesterday, hinting that the region could gain some traction going forward. Today’s economic data has further supported this case, as data showed an improvement in labour market conditions in Germany and Italy. Against this backdrop, today’s unemployment report in the Euro zone will be keenly eyed to ascertain whether the region finds some solace from its recent woes surrounding the jobs market. On account of the improving economic landscape, the Euro has found some support against the US Dollar in today’s trading session. Later today, the Euro zone consumer price index will also be keenly eyed for further insights into inflationary pressures on the region’s economy ahead of the ECB’s policy meeting tomorrow. However, most market attention in today’s session will undoubtedly remain on the FOMC meeting and the US second quarter GDP data.

Other Currencies – Highlights

The Kiwi Dollar moved higher against the greenback this morning after data showed that business confidence in New Zealand climbed to its highest level in more than 14 years for July, with an anticipation of a broader expansion in economic activity. Sentiment improved across sectors, with both construction and manufacturing recording healthy increases. However, investors will be cautious as the US Fed’s monetary policy decision later today has the potential to alter the direction of risk appetite in today’s trading session. With little on the domestic economic calendar during this week, news flows emanating from both sides of the Atlantic will prove crucial for the Kiwi Dollar. Additionally, the Chinese manufacturing PMI data due early morning tomorrow could sway market sentiment.