On Her Majesties Secret Stimulus

Yesterday’s positive US retail sales and jobless claims data have raised speculation that the Fed might slow its pace of asset purchases and kept a tight lid on market risk appetite. With the US macro data due later today further expected to substantiate this belief, risk sentiment is likely to remain subdued. Apart from a plethora of key economic releases from both sides of the Atlantic next week, the keenly awaited Fed’s meeting will hold prominence for setting the near term trend in the currency market. Meanwhile, with the British economy offering positive signals, the consumer inflation data and BoE minutes remain key highlights that will influence Sterling next week.

Pound Sterling – UK Markets

The Pound oscillated between gains and losses against the US Dollar in yesterday’s trading session. Traders continue to weigh the possibility of the Fed scaling back its stimulus measures sooner than expected following buoyant US macro data. However, a media report later eased worries over the Fed’s future policy stance. Meanwhile, Sterling is trading lower against the US Dollar and the Euro in today’s trading session, as market participants await a slew of key US macro releases due later today for further direction to currency markets. With a rather eventful week for the Pound coming to an end, traders are expected to brace themselves for a flurry of UK macro releases scheduled next week. Consumer price inflation, retail sales and public sector borrowings data are the major macro releases on traders’ radar during the next week. With most of the recent economic data suggesting that the British economy is steadily gathering momentum, the next week’s BoE minutes will be a key event for decoding issues playing on the minds of policymakers following the improvement in economic scenario.

US Dollar – US Markets

The widely watched economic indicators yesterday further confirmed that the US economy is treading the path to recovery. Retail sales data released yesterday surpassed market expectations, climbing for a second straight month for May and further justifying the recent sharp improvement seen in consumer confidence. Moreover, data revealed that the number of Americans claiming jobless benefits surprisingly declined last week. The US Dollar gained traction against the single currency in yesterday’s session, as upbeat economic data have further heightened speculation that the Fed might begin scrolling back its stimulus measures amid steady signs of recovery. Against the backdrop of a steady economic recovery, market players keenly await industrial production as well as Reuters / Michigan consumer confidence index data due later today. Positive reading in today’s session is likely to further increase appeal of the greenback ahead of the FOMC meeting due next week. Meanwhile, with few Fed officials expressing concerns over low inflation, today’s producer prices data will be watched closely for monitoring inflationary pressures.

Euro – European Markets

The single currency retreated against the US Dollar in yesterday’s trading session after buoyant US macro data fuelled speculation that the US Fed might cut back its stimulus within the next few meetings. On macro front, the Euro zone consumer inflation data is likely to confirm that inflationary pressures remain well anchored. Meanwhile, market players look forward to the employment report for the first quarter for further cues on the precarious situation of the region’s job market. In the absence of key European economic news apart from the employment report, the single currency is likely to be influenced by developments from the US in today’s trading session. Meanwhile, a raft of major economic releases due next week will provide new numbers for evaluating the efficacy of recent easing measures undertaken by the ECB. Markets keenly await the next week’s manufacturing and services PMI releases from the major European economies, especially after last month’s data suggested marginal improvement in the overall economic activity. The consumer confidence and ZEW sentiment indices also feature in next week’s calendar and could provide valuable insights into the region’s economic performance for this month.

Other Currencies – Highlights

The Japanese Yen has moved lower against the majors in today’s trading session. Meanwhile, the minutes of the Bank of Japan’s latest monetary policy meeting revealed that a general view prevailed among the board members that the Japanese economy is gaining momentum. However, few members expressed concerns over the recent volatility seen in bond markets due to the central bank’s massive stimulus measures. With the Bank of Japan’s report released earlier this week upgrading the nation’s economic outlook, a barrage of key economic releases including industrial production and trade balance will be keenly gauged to ascertain the pace of the nation’s recovery. Meanwhile, in today’s trading session, news flows emanating from the US are likely to pay a pivotal role in setting the trend of market sentiment, given its growing influence on the Fed’s future policy stance.