A View to a Recovery

In a boost to the recent upbeat economic data in the UK, the labour market report just out has indicated that the number of people claiming jobless benefits in the UK continued to decline for May. This has provided further impetus to the Pound which gained momentum yesterday following the encouraging NIESR GDP estimate for the three months period ended May. Going forward for today, the outcome of the German constitutional court’s hearing over the legality of the ECB’s Outright Monetary Transactions programme will prove crucial for risk sentiment. Additionally, industrial production data in the Euro zone due later today will garner market interest.

Pound Sterling – UK Markets

Sterling has strengthened against the US Dollar as data just out has revealed the number of people claiming jobless benefits declined more than anticipated for May, further vindicating widespread belief that the UK economy is turning a corner. Meanwhile, yesterday’s data indicated that monthly industrial output in the UK unexpectedly rose for April, bolstered by higher output at oil and water companies. Although the surprise upswing garnered a muted response, Sterling nudged above the 1.56 mark against the US Dollar after NEISR data showed that the UK economy grew by 0.6% in the three months to the end of May, suggesting that the nation is steadily recovering after escaping a triple dip recession in the last quarter. Against the backdrop of an apparent pick-up in economic activity, the BoE policymaker, Paul Fisher’s speech later today will garner market attention for decoding the future monetary policy moves. With most of the key domestic economic data out for the week, Sterling will take direction from external developments, especially the German constitutional court’s hearing scheduled later today.

US Dollar – US Markets

The US Dollar is trading in a tight range against the Euro this morning, as markets remain on the sidelines ahead of the outcome of German’s constitutional court hearing wherein the legality of the ECB’s bond buying scheme is being questioned. On the domestic front, the NFIB small business optimism data released yesterday indicated that confidence among small business owners in the US surpassed market expectations to climb to its highest level in a year. With the US economy providing steady signs of recovery, the US monthly budget statement due later today will be keenly watched to ascertain whether the US government’s unprecedented fiscal tightening measures have had any positive impact on the nation’s budget deficit. Apart from the budget report, market players are likely to keep a tab on news flows emanating from the other side of the Atlantic for further cues to risk appetite. Meanwhile, retail sales and initial jobless claims data in the US due tomorrow will be watched closely for a more rounded view of the economy.

Euro – European Markets

Despite a lack of major economic news, the single currency nudged close to the 1.33 mark against the US Dollar in yesterday’s trading session. However, the Euro-Sterling pair is trading under pressure today, as upbeat UK jobs data has further boosted growth prospects for the economy. Meanwhile, with the Euro zone economy failing to provide any definite signs of progress, the ECB executive board member, Benoit Coeure, indicated that the central bank stands ready to deploy additional tools, if required. Against this backdrop, markets keenly await the Euro zone industrial production data scheduled for release later today for further clarity on the region’s economic outlook. With German industrial output surprising on the upside, it remains to be seen whether today’s report also provides similar results. However, most of the market attention will revolve around the German constitutional court’s hearing over the legality of the ECB’s bond buying programme. With key members on both sides of the case presenting strong evidence for defending their stand, today’s outcome will be keenly awaited and could prove crucial for the near term trend in the single currency.

Other Currencies – Highlights

The Australian Dollar nudged higher against the US Dollar in today’s trading session following an upbeat consumer confidence report which revealed that most of the people surveyed were optimistic about the economy. The Westpac/Melbourne report released early morning today came as a breather, as data showed that the consumer confidence index in Australia climbed to a reading of 102.2 for June, the first time in two months that the index rose above the level of 100. However, the Aussie Dollar’s upside seems limited, as employment data due tomorrow is projected to show that the jobless rate in Australia edged higher for May. Moreover, the employment change data is expected to offer downbeat results, thereby highlighting the recent weakness observed in the broader economy. This could rekindle speculation that the Reserve Bank of Australia might resort to further rate cuts in a bid to boost the ailing economy. In today’s session, events unfolding in the Euro zone are likely to hold prominence for the near term direction to risk appetite.