Risk Appetite Remains Subdued

Although the Chinese central bank tried to calm market nerves, traders remained risk averse in today’s trading session as robust US macro data released yesterday strengthened belief that the Fed might alter the pace of asset purchases sooner than anticipated. Today’s revised first quarter GDP data in the US will provide further food for thought to traders. “Risk off” sentiment was also apparent in the European bond markets, as Italy’s borrowing costs rose at a bond auction held yesterday. In the midst of prevalent worries in Europe, the ECB Chief reiterated that he will continue with an accommodative stance. At home, the BoE’s financial stability report due later today will provide further direction to Sterling investors.

Pound Sterling – UK Markets

Providing further evidence that the BoE’s efforts to stimulate the housing market are yielding results, the BBA report released yesterday revealed that mortgage approvals in the UK rose more than anticipated for May to reach the highest level in sixteen months. The upbeat economic landscape in the UK was further highlighted yesterday after CBI data showed that the retail sector continued to improve. Although the Pound climbed modestly following buoyant reports, the currency gave up most of its gains after robust US macro data heightened fears of the US Fed scaling back its massive stimulus measures in the near term. Meanwhile, influential policymakers in the BoE seemed inclined towards maintaining the central bank’s current policy stance, voicing concerns over the upside risk to inflation. Against this backdrop, markets are expected to keep a tab on the BoE’s financial stability report due later today for gauging the strength of the financial sector, amid prevalent global economic uncertainty. Additionally the UK Chancellor, George Osborne’s spending review due later today has the potential to impact the direction of Sterling against the majors.

US Dollar – US Markets

The US Dollar garnered traction against the Euro and the Pound is yesterday’s trading session after the upbeat set of domestic economic data supported the case for a partial withdrawal of the Fed’s stimulus measures. In the midst of an improving domestic economic landscape, data released yesterday revealed that consumer confidence in the US climbed for June to its highest level in more than five years. Moreover, businesses stepped up their orders for durable goods for May, thereby reflecting the overall resilience of the economy to external shocks and offering signs that the manufacturing sector is stabilising. Additionally, the housing sector recovery remained intact, as the S&P/Case-Shiller home price index indicated an improvement for April, while new home sales rose more than expected for May. In this context, tomorrow’s pending home sales data will be closely evaluated by investors. Going forward today, traders brace themselves for the revised reading of the first quarter GDP data later today, which is expected to match the earlier estimate. Markets also keenly await comments from FOMC policymakers in the week ahead to gauge if they are on board with the Fed Chief’s idea of tapering the current monetary stimulus measures.

Euro – European Markets

Upbeat US macro data played spoilsport for high yield currencies in yesterday’s trading session. The single currency nudged below 1.31 against the greenback yesterday, as buoyant US domestic data heightened fears of the Fed tapering its bond buying programme earlier than expected. Further compounding matters, borrowing costs at an Italian bond auction climbed to the highest level since September 2012, amid concerns that the nation might fall back into a crisis if the Fed starts withdrawing its stimulus measures. In the midst of the prevalent economic gloom in the Euro zone and recent market turbulence due to policy shifts, the ECB Chief, Mario Draghi, indicated that it has become all the more imperative for the central bank to continue with its accommodative monetary policy stance. In today’s trading session, the GfK survey released earlier today revealed that consumer morale in Germany unexpectedly improved for July, leading the Euro to move higher against the Pound. Against the backdrop of improved consumer sentiment, traders keenly await tomorrow’s German employment data and a positive surprise will help the common currency to regain its footing against the majors.

Other Currencies – Highlights

In today’s trading session, the Swiss Franc is trading in a tight range against the Euro and the US Dollar. There was little reaction in the currency after data released earlier today revealed that consumption among Swiss residents rose modestly for May, underpinned by a notable improvement in sentiment in the retail sector. In this context, it remains to be seen whether this improved sentiment is reflected in retail sales data for May due next month. Apart from retail sales, manufacturing PMI and consumer confidence data scheduled next week will hog the limelight for further insights into the state of the nation’s economic health. With little in store in terms of domestic macro news during this week, events unfolding in global markets are likely to act as a catalyst for the near term dynamics of the Swiss Franc against the majors.