Bond, Euro Bond

The greenback encountered some weakness yesterday after S&P upgraded its credit rating outlook on the US economy, thereby lowering concerns of global systemic risks. Meanwhile, data just out has revealed that the monthly industrial production in the UK unexpectedly rose for April. Markets will set their sight on today’s NIESR GDP estimate and tomorrow’s employment report for further insights into the nation’s second quarter performance. With a seemingly lacklustre day in Europe and the US, the two-day German constitutional court’s hearing commencing today on the legality of the ECB’s bond buying programme could act as a catalyst for the near term dynamics of the single currency.

Pound Sterling – UK Markets

Sterling edged higher versus the US Dollar yesterday after a fairly range bound trading session, tracking global market moves. Meanwhile, data just released has shown that annual industrial output in the UK continued to decline for April, though at a slower pace. Meanwhile, the health of the housing sector remains stable, as RICS earlier today reported that the house price balance in the UK climbed at its fastest level in three years for May, further reflecting the positive impact of the BoE’s FLS scheme. In the wake of the recent buoyancy witnessed in the British economy, the OECD indicated that the nation is expected to remain in the growth mode as recovery gathers pace. Against this backdrop, the NEISR GDP estimate for May due later today is expected to garner market attention to unearth a clearer picture of the second quarter performance. Additionally, markets look forward to the employment report due tomorrow which is expected to show an improvement for May.

US Dollar – US Markets

In a major development, S&P upgraded its outlook for the US government’s long term debt to “Stable” from “Negative” citing receding risks on the fiscal front and improving US macroeconomic fundamentals. Latest indicators from the economic front have shown a considerable recovery in the labour market from the abyss seen during the economic crisis, while the recent spending cuts should aid in lowering the budget deficit this year. Meanwhile, the US Dollar is trading in a tight range against the majors this morning amid a lack of decisive news to trigger risk appetite. In the midst of ongoing clamour surrounding the possible withdrawal of the Fed’s massive asset purchase programme, the President of St. Louis Fed, James Bullard, indicated that low inflation may necessitate the Fed to continue with its ultra loose stance. In the absence of major domestic economic developments, market sentiment will be guided by news flow emanating from overseas markets in today’s trading session.

Euro – European Markets

An improvement in the Sentix investor confidence index coupled with an upgrade to the US credit rating outlook provided support to the Euro against the greenback in yesterday’s trading session. However, the Euro is likely to encounter volatility from developments taking place in Germany’s constitutional court relating to the legality of the ECB’s bond purchase programme. A crucial two-day hearing at the German top court will scrutinise the compatibility of the ECB’s OMT programme, which endorses unlimited bond purchases by the central bank to provide a "fully effective backstop" to crisis stricken Euro zone economies. Apart from this, events unfolding in overseas markets are expected to grab market attention for further direction to currency markets in today’s session. With yesterday’s data revealing that industrial production in France rose more than expected for April, while Italy’s industrial output declined at a slower pace, markets keenly await tomorrow’s Euro zone industrial production data for further clarity on this front.

Other Currencies – Highlights

The Japanese Yen has strengthened against the US Dollar and the Euro in today’s trading session following the outcome of the Bank of Japan’s monetary policy meeting. On broadly expected lines, the central bank kept its key interest rate and the size of asset purchase programme unchanged at its monetary policy meeting held earlier today. However, the Bank of Japan did not announce any new steps to combat the recent volatility witnessed in the nation’s bond market due to its massive easing measures. Moreover, the central bank raised its assessment on the nation citing an improvement in exports and industrial production as well as steady private consumption. Meanwhile, data out early morning today revealed that sentiment at large manufacturing industries in Japan improved significantly for the second quarter of 2013. Against this backdrop, markets look forward to the central bank’s monthly economic report due tomorrow for further insights on the economic outlook. Apart from this, the minutes of the Bank of Japan’s last policy meeting due later this week will prove crucial for the near term trend in the Japanese Yen against the majors.