Markets Remain on Edge

“Risk off” sentiment, amid prevalent worries of the US Fed scaling back its stimulus measures in the near term, has supported the greenback in today’s trading session. With US economic growth remaining the focal point for the Fed’s future policy moves, today’s regional manufacturing surveys are expected to act as the key trend setter for risk appetite. Additionally, liquidity fears in the Chinese financial system have exacerbated nervousness among market participants. At home, the Chancellor once again reiterated his commitment to the austerity plan and added that the economy could slide back into a recession if current economic plans are aborted. Meanwhile, today’s German Ifo sentiment indices have provided encouraging signs concerning the region’s recovery prospects.

Pound Sterling – UK Markets

On Friday, the Pound lost ground against the US Dollar after data revealed that UK public sector borrowing rose for May, albeit at a slower than expected pace. In a bid to lower the nation’s budget deficit, reports revealed that the UK Chancellor, George Osborne, has reached an agreement over the weekend with government departments for £11.5 billion spending cuts for the year beginning April 2015. Meanwhile, fears of the US Fed scaling back its stimulus measures has led Sterling to nudge below the 1.54 mark against the greenback in today’s session. With little on the UK economic calendar today, external cues will be monitored for further direction to currency markets. Going forward this week, markets look forward to the BBA mortgage loans data due tomorrow for further insights, especially against the backdrop of positive performance from the housing sector. The Gfk consumer confidence, current account balance and GDP data are the other key economic indicators to watch out for this week. Apart from this, the BoE UK financial stability report due on Wednesday is expected to shed light over the stability and resilience of the nation’s financial sector.

US Dollar – US Markets

Fears of early withdrawal of the US Fed’s ultra loose monetary policy measures have continued to prompt investors to adopt a cautious approach, leading the US Dollar to garner traction against the Euro and the Pound in today’s session. Meanwhile, a barrage of key economic releases due this week will be closely watched, considering its influence on the Fed’s future policy moves. In today’s session, markets are expected to set their sights on the Chicago and Dallas manufacturing activity data ahead of other regional indices scheduled for release later this week, for insights into the nation’s overall manufacturing performance following a seemingly lacklustre set of figures in the previous month. Durable goods orders, the final GDP and consumer confidence data also hold relevance for the near term trend to currency markets. Additionally, S&P/Case-Shiller home prices data, as well as new and pending home sales reports, are expected to garner attention during this week for further clarity on housing sector prospects. Apart from the raft of economic data, comments from a few US Fed officials this week will hold relevance for decoding the probable timing of the tapering of the current stimulus measures.

Euro – European Markets

The single currency is hovering close to the 1.31 mark against the greenback in today’s session, as traders preferred to seek shelter in safe haven currencies amid prevalent risk of the US Fed altering its pace of asset purchases sooner than expected. Additionally, political uncertainty heightened in Greece after the nation’s Democratic Left Party withdrew its support for the coalition government on Friday in protest over planned public sector layoffs. However, with the German Ifo sentiment indices released earlier today indicating an improvement for June, the Euro has managed to limit its downside risks against the majors. With the recent sentiment indices data offering some glimmer of hope, markets look forward to German unemployment and retail sales data due later in the week for gauging the prospects of recovery in the Euro region’s largest economy. Additionally, the German Gfk consumer confidence figures, as well as a slew of Euro zone confidence indices data, remain the other key events scheduled this week. With no major economic releases scheduled for release today, the single currency is likely to monitor developments on the other side of the Atlantic for further cues to risk appetite.

Other Currencies – Highlights

The disappointing set of economic indicators from Canada led the Canadian Dollar to decline against its US counterpart in Friday’s trading session. Data released on Friday revealed that the annual consumer price inflation in Canada accelerated to 0.7% for May, lower than market expectations. With inflation hovering well below the Bank of Canada’s target rate of 2%, the central bank is likely to continue with its easing measures amid global economic uncertainty and weak domestic economic growth. Despite subdued inflationary pressures, data indicated that retail sales registered less than anticipated growth for April. In today’s session, the Canadian Dollar is trading in a tight range against the greenback amid a lack of decisive news to trigger risk appetite. Meanwhile, markets are expected to keep a tab on the Canadian GDP data for April due this Friday for insights into the growth trajectory. Additionally, developments taking place in overseas markets are also expected to play a pivotal role in charting the near term trend for the Canadian Dollar against the majors.