Fed Plays Hard to Get

In the midst of trepidation over the Fed’s next move, a few policymakers continued to quell hopes of an early withdrawal of the current monetary stimulus. With recent economic releases offering no conclusive picture of the stance that the Fed may adopt, traders will keep a close eye on next week’s unemployment report for further direction. In the UK, a downward revision to first quarter GDP bruised sentiment, thereby shifting focus to next week’s PMI releases for any signs of progress made by the British economy in the second quarter. Meanwhile, incoming BoE Governor Mark Carney’s first monetary policy vote in the ECB monetary policy meeting scheduled for next week, is likely to garner attention.

Pound Sterling – UK Markets

Disappointing annualised first quarter GDP data from the UK and buoyant economic reports from the Euro zone led Sterling to register losses against the single currency yesterday. Adding to the weakness, data showed that the UK’s current account deficit widened unexpectedly in the first quarter. However, recent economic releases continued to offer signs of buoyancy as Nationwide house prices released today has further validated belief that recovery in the UK’s housing sector remains intact, while Gfk reported that consumer morale in the UK climbed to its highest level in two years for May. Against the backdrop of an unclear economic landscape, markets keenly await manufacturing, services and construction PMI releases due next week for further evidence of the state of the UK’s economy. In the coming week, market participants will focus on Mark Carney’s first monetary policy vote as the BoE Governor. His views on the nation’s future growth prospects and prevalent high inflationary outlook will be keenly dissected in ascertaining the central bank’s future policy moves. In the midst of a lack of domestic trigger points in the day ahead, investors are expected to track overseas events for further direction to the Pound.

US Dollar – US Markets

Reports released yesterday revealed that the number of Americans claiming jobless benefits declined for the previous week, broadly in line with market estimates, thereby highlighting that the US economic recovery is on track for modest growth. Moreover, pending home sales also rebounded more than anticipated for May. However, manufacturing activity in Kansas region unexpectedly moved into negative territory for June. Market participants shrugged off the mostly upbeat data after the US New York city Chief William Dudley and Atlanta Fed President Dennis Lockhart watered down speculation of the central bank abandoning its ultra loose monetary policy stance any time soon, thereby leading the US Dollar to trade in a tight range against the Euro yesterday. Meanwhile, the greenback has lost steam against the single currency today following a robust German retail sales report. Going ahead, the Michigan consumer confidence will be eyed for further insights into the nation’s morale and will help steer the direction of the US Dollar in today’s session. Markets are also expected to keep a tab on Chicago manufacturing data due today ahead of the ISM manufacturing data due next week for signs of revival in the nation’s manufacturing activity. Additionally, comments from Fed officials due today have the potential to sway market sentiment.

Euro – European Markets

The single currency has garnered traction against the greenback and Sterling after data released earlier today revealed that retail sales in Germany rebounded more than forecast for May. This, along with robust employment data released yesterday, has provided evidence that recovery in the region’s largest economy is gaining momentum. Moreover, a flurry of sentiment indices data from the Euro zone released yesterday also showed an improvement for June. However, the economic woes fail to abate as France’s budget watchdog indicated that the nation’s budget deficit target remains significantly off track, thereby calling for further cuts in public spending to get the ailing economy back on track. With the week coming to an end, markets are expected to keep a tab on German consumer confidence data ahead of the Euro zone inflation figures due next week for early insights into the region’s inflation outlook. The Euro zone unemployment and revised manufacturing, as well as services PMI data, also remain key events on market radar to second guess the outcome of ECB’s monetary policy meeting due next week.

Other Currencies – Highlights

Despite a flurry of key data from Japan released overnight, revealing that the Japanese economy is picking up steam, the Japanese Yen declined against the Euro and the US Dollar in today’s trading session. Economic data released overnight revealed that both retail sales and industrial production in Japan rose more than forecast, while the jobless rate surprisingly remained steady for May. Additionally, manufacturing activity grew for June at its fastest pace since February 2011, suggesting that the sector would register buoyant growth for this month. Meanwhile, consumer price index data provided signs that the BoJ’s massive stimulus measures to end the fifteen years of deflation were yielding results, as data revealed that consumer price index dropped 0.3 percent for May compared to a 0.7 percent decline posted in the preceding month. In today’s session, markets are expected to keep a tab on developments taking place in overseas markets for further direction to currency markets. For the forthcoming week, BoJ’s monthly economic report is expected to shed light on the nation’s performance next month.