Bernanke Takes Centre Stage

Across the Atlantic, uncertainty over the US Fed’s future monetary policy stance, ahead of its policy meeting due later today, has kept investors on the edge. Traders will keenly eye the Fed Chief, Ben Bernanke’s post meeting press conference for hints to the timing of the tapering of current stimulus measures and his view on the outlook of the economy. In Europe, traders were in for a pleasant surprise yesterday after the ZEW survey revealed that economic sentiment in the Euro zone and Germany surpassed market expectations. Meanwhile, minutes of the BoE’s last policy meeting showed no variation in the voting pattern. This, along with yesterday’s stubborn inflation, should keep the prospect of additional monetary stimulus at bay.

Pound Sterling – UK Markets

The BoE minutes of the June 2013 policy meeting have offered no major surprises, as MPC members voted 6-3 to keep the size of asset purchases unchanged amid signs of a steady economic recovery and high inflationary pressures. Yesterday’s data revealed that consumer price inflation in the UK climbed more than anticipated for May, primarily due to higher fuel prices, heightening fears that the sticky inflation outlook might impact consumer spending and thereby hampering economic recovery. In this context, traders keenly await retail sales data, due tomorrow, to ascertain whether high inflation had any material impact on retail spending. Meanwhile, the Pound is trading in a tight range against the US Dollar in today’s trading session, as looming uncertainty over the outcome of the Fed’s policy meeting later today prompted traders to adopt a cautious approach. On account of a light domestic calendar today, trading sentiment in today’s trading session is inevitably going to be affected by developments taking place in the US.

US Dollar – US Markets

The US Dollar lost ground against the single currency yesterday following upbeat ZEW sentiment indices data in Germany and the Euro zone. Moreover, lacklustre housing data in the US dented the appeal of the greenback. Data released yesterday revealed that housing starts rose at a slower than expected pace, while building permits declined for May. However, consumer price inflation data revealed that inflationary concerns remained at bay for the last month. The greenback is looking for direction against both the Euro and the Pound in today’s session, as traders adopted a cautious approach ahead of the Fed’s monetary policy meeting later today. Although the stance is unlikely to undergo any major changes, the Fed Chairman’s views on the nation’s economic outlook and future policy moves will be keenly watched, given its overall implication to the Fed’s stance going forward. Today’s outcome of the meeting is expected to play a vital role in charting the near term direction of the greenback against the majors.

Euro – European Markets

Encouraging ZEW economic sentiment indices from Germany and the Euro zone helped the single currency to move upwards against both the US Dollar and the Pound in yesterday’s trading session. The focus now squarely shifts to the manufacturing and services PMI data from major European economies, due tomorrow, for further insights into the region’s growth trajectory. With tomorrow’s data poised to show an improvement in economic activity for June, the downside risks for the Euro in tomorrow’s session look limited. However, peripheral economies continue to pose fresh concerns, as Spain witnessed a sharp rise in short-term borrowing costs at a bill auction held yesterday, reflecting renewed market concerns over the nation’s ability to repay its debts. It remains to be seen whether tomorrow’s long term auction echoes similar concerns. Meanwhile, in today’s trading session, the single currency is trading almost flat against the US Dollar, as traders preferred to scale back their appetite for high yield currencies ahead of the US Fed monetary policy outcome later today.

Other Currencies – Highlights

“Risk off” sentiment amid uncertainty over the Fed’s monetary policy outcome has prompted traders to shun high yield currencies, thereby leading the Japanese Yen to nudge higher against high yield currencies in today’s trading session. On the domestic front, data released early morning today revealed that the trade deficit in Japan widened for May, as the weaker Yen increased the nation’s importing costs, thereby highlighting the challenge the government faces in boosting the economy and lowering deflation. With little in store in terms of macro news during this weekly trading session, market players are expected to keep a track on overseas events for further direction to the Japanese Yen. Meanwhile, with a plethora of key domestic economic releases due next week, including manufacturing PMI, retail sales, unemployment rate and industrial production data, the Japanese Yen is likely to face some volatility.