Dischord Turns to Harmony

With an eventful week coming to an end, market players seem to have taken a breather in today’s trading session. Meanwhile, yesterday’s mostly upbeat PMI releases across Europe and robust Euro zone consumer confidence data have strengthened hopes that the Euro region is poised to regain its footing in coming months. With a light economic calendar today, macro releases scheduled next week will be tracked for further cues about the global economic recovery. At home, despite yesterday’s buoyant retail sales data suggesting that the nascent UK recovery remains on track, report just out has revealed that the public sector borrowing climbed for May, thereby raising doubts over the government’s austerity programme.

Pound Sterling – UK Markets

The UK retail sales figures released yesterday further added to the string of positive economic data, as reports revealed a more than anticipated rise in retail sales last month, primarily bolstered by better shopping conditions and aggressive discounting induced consumer spending. This led the Pound to limit its downside risks against the greenback and move higher against the Euro in yesterday’s trading session. However, the CBI’s trend survey failed to replicate the recent buoyancy witnessed in the UK manufacturing sector, as data showed a less than expected improvement in industrial orders for June. In today’s trading session, the Pound is trading on a firmer footing against the US Dollar. The public sector borrowing data just released has indicated a less than expected rise in the government borrowing for May. However, with the borrowing showing an upward trend for the last month, the chances of the British Chancellor meeting his fiscal targets looks doubtful. With a relatively calm day ahead, traders brace themselves for events scheduled next week for further direction to the Pound against the majors.

US Dollar – US Markets

The US Dollar has taken a breather against the Euro this morning, following a steep rise yesterday after the US Fed Chief opined that the central bank might begin tapering its bond buying programme. A partial unwinding of the current monetary stimulus appears on the cards, as macro data continues to offer a mostly upbeat view of the economy. Yesterday, the manufacturing barometer for the Philadelphia region unexpectedly rebounded for June, further suggesting that the manufacturing sector which had remained a drag on the nation’s performance is showing signs of building up steam. Moreover, existing home sales registered buoyant figures for May. However, the number of Americans claiming for initial jobless benefits rose more than expected last week. With a light economic calendar today, markets look forward to a slew of regional manufacturing releases due next week for further insights into the growth outlook. Additionally, the US consumer confidence and durable goods order data due next week will hold prominence for the near term direction to currency markets.

Euro – European Markets

Mostly upbeat PMI releases across major European economies and buoyant Euro zone consumer confidence data aided the single currency to arrest its decline against the greenback yesterday. Barring the German manufacturing PMI, yesterday‘s data indicated that manufacturing and services activity across Europe improved further for June, with the German services PMI moving into the expansion phase. This buoyancy was also reflected in the Euro zone consumer confidence which improved more than anticipated for June. Moreover, Spain witnessed buoyant demand at its bond auction held yesterday despite the IMF earlier warning that the outlook for the nation remained bleak. Meanwhile, in a move to soothe market nerves after media reports indicated the IMF preparing to suspend aid payment to Greece, the agency clarified that Greece will not face any financing problems, if the current review of the nation’s bailout programme concludes by the end of July 2013. With the Euro looking for direction against the majors in today’s trading session, investors are expected to keep an eye on the Euro-area finance ministers meeting scheduled later today. For the forth coming week, the Ifo sentiment indices and retail sales across major European economies will be evaluated for further cues.

Other Currencies – Highlights

The Swiss Franc steadily moved higher against the greenback and the Euro in yesterday’s trading session after the Swiss National Bank maintained its benchmark lending rate and retained the ceiling for the Euro-Franc pair amid rising risks from the global financial markets. Moreover, the central bank President, Thomas Jordan, in his post meeting press conference indicated that the central bank will keep no stone unturned including raising the exchange rate floor or imposing charges on excess bank reserves in the event of sudden upward pressure on the Swiss Franc. Meanwhile, in its summer forecast, the KOF Economic Institute confirmed the Swiss GDP growth forecast for this year at 1.4% underpinned by buoyant domestic demand, despite the ongoing recession in the Euro zone economy. Traders are expected to closely monitor events in the Euro zone for further direction, given the Swiss Franc’s peg to the Euro. Going forward, with UBS consumption index, KOF leading indicator and the Swiss National Bank’s quarterly bulletin data featuring on the economic calendar next week, the Swiss franc is likely to face some volatility in the near term.