Central Bankers on Centre Stage

Central bank meetings in the UK and Euro zone take centre stage today, although no major policy decisions are expected. However, in the midst of a prolonged recession in the Euro zone, the ECB Chief, Mario Draghi’s comments will be closely scrutinised to decipher the future moves in dealing with the region’s debt crisis. Meanwhile, the UK awaits a change at the helm of the BoE, as the current Governor presides over his last monetary policy meeting later today. With the US economy grabbing market attention, today’s initial jobless claims and tomorrow’s non-farm payrolls reports will prove crucial for risk appetite, given the weaker than expected ADP private payrolls data released yesterday.

Pound Sterling – UK Markets

Robust services PMI data yesterday added to the string of buoyant economic data, thereby hinting that the UK economy is on course for two successive quarters of growth. The closely watched indicator revealed that the UK’s dominant service sector expanded at its fastest rate since March 2012, assisting Sterling to breach the crucial 1.54 mark against the US Dollar and move higher against the Euro in yesterday’s trading session. Additionally, some gains in the Pound-US Dollar pair can be attributed to weak US macro data which provided respite to traders that QE3 might continue for a longer than expected period. In the aftermath of upbeat economic data across all sectors in Britain, the BoE, in its monetary policy meeting due later today, is likely to keep its policy stance unaltered at current levels. However, all eyes will hover around the BoE Governor, Mervyn King, as he presides over his final meeting before handin over the reins to the incoming Governor, Mark Carney. Traders are expected to closely follow the ECB monetary policy meeting due later today and tomorrow’s UK trade balance data for further direction.

US Dollar – US Markets

Yesterday, the ISM report revealed that its non-manufacturing index in the US surpassed market expectations for May, suggesting that the nascent US economic recovery remains on track. However, orders to US factories rebounded less than anticipated for April, adding to signs of a slowdown in manufacturing activity. Uncertainty over the recent improvement in the labour market continued to prevail, as the ADP employment report out yesterday showed that companies hired fewer than expected workers for May. Against this backdrop, traders are expected to pay modest attention to today’s jobless claims data ahead of the crucial non-farm payrolls report due tomorrow for further clarity on the labour market outlook. Meanwhile, the closely watched Fed Beige Book survey indicated that the US economy witnessed a “modest to moderate growth” in most of its districts. With this month’s assessment of the economy offering a tinge of pessimism, a premature withdrawal of bond purchases in the US does not look on the cards for the time being. In today’s session, the greenback will take direction from the initial jobless claims report which is expected to show an improvement last week.

Euro – European Markets

Dire Euro zone retail sales data released yesterday provided further evidence that signs of growth in the region remain elusive. The confirmation of a contraction in manufacturing and services PMI across major European economies and elevated levels of unemployment in the Euro zone have strengthened calls for the ECB to take decisive steps to revive the economy, especially after the European Commission granted additional time to the Euro-area economies to reduce their budget deficits. The common currency is trading on a firmer footing against the US Dollar this morning amid expectations that the ECB might keep its monetary policy on hold. However, with the central bank Chief floating the idea of negative interest rates recently, his comments will be closely followed for decoding the ECB’s future policy stance and is expected to play a vital role in charting the near term direction of the single currency against the majors. Markets are also keeping an eye on the Spanish long term bond auctions to gauge investors’ appetite for riskier assets, especially after the previous auction witnessed a rise in borrowing costs. Additionally, German factory orders data will provide fresh number to gauge the nation’s precarious macroeconomic situation.

Other Currencies – Highlights

The Swiss Franc is trading almost flat against the Euro and has moved higher against the greenback, as data released earlier today indicated that the deflationary trend in the Swiss economy unexpectedly eased for May, suggesting that the Swiss National Bank’s intervention in currency markets to combat deflation are yielding results. Earlier in the week, the Swiss manufacturing PMI, a snapshot of the nation’s manufacturing sector, expanded more than anticipated for May, thereby adding to the string of positive economic data from the nation. With little in store in terms of domestic macro news today, the movement in the Swiss Franc will be closely influenced by the ECB’s post meeting press conference. Additionally, initial jobless claims data in the US will prove decisive for risk appetite in today’s trading session. Meanwhile, the forthcoming week features crucial economic releases in Switzerland including unemployment and retail sales data which are expected to provide further insights into the pace of economic recovery.