Quiet Session Ahead

Friday’s session brought some respite for the US economy, as data indicated a sharp improvement in US consumer morale for May, leading to a fall in demand for riskier currencies. With increased chatter over the tapering of stimulus initiatives and with most major global central banks resorting to easing measures, the FOMC minutes, Ben Bernanke’s testimony and manufacturing and services PMI releases across Europe this week should shed some light on the future course of monetary policy. At home, Rightmove reported that the average asking price for houses rose for the fifth consecutive month, bolstered by the BoE’ s FLS scheme. With a lack of decisive triggers today, Sterling investors can ponder on a raft of economic data due later this week for further direction.

Pound Sterling – UK Markets

Robust US consumer confidence data weighed on Sterling’s performance against the US Dollar in Friday’s trading session, as a buoyant report further added to speculation that the US Fed might scale back its stimulus measures. Meanwhile, the Pound is trading in a tight range against the majors this morning amid a lack of triggers. On the macro front, a rise in Rightmove house prices earlier today has further validated signs that the UK housing activity is picking up steam. Against this backdrop, the BBA mortgage loans data due later in the week will be closely scrutinised for a further update on the sector’s recovery. Meanwhile, despite cooling inflationary pressures, the BoE policymaker, Martin Weale, stated that scope for further monetary stimulus seems limited, given the upside risk to inflation expectations. With the recent economic data instilling confidence in the British economy, all eyes and ears will be on the BoE minutes due later this week for further insights into the issues playing on the minds of policymakers. Moreover, with consumer price inflation, retail sales, public finances and the second GDP estimate hogging the limelight this week, Sterling is likely to face ample volatility during this weekly session.

US Dollar – US Markets

Risk appetite in Friday’s session failed to gain momentum after Reuters/Michigan consumer confidence surged more than expected for May, spurring speculation that the Fed might begin scaling back its aggressive monetary stimulus. The report revealed that consumer morale surged to the highest level in almost six years for May, laying to rest doubts over the state of the US recovery after a disappointing set of indicators the previous day. However, it remains to be seen whether improved confidence can translate into robust economic performance this month. With the US Dollar trading marginally lower against the majors this morning, traders are expected to keep a tab on the Chicago national activity index for further direction to risk sentiment. With the recent labour market report offering some respite and inflation showing an easing trend, Ben Bernanke’s testimony due later this week will be closely watched for decoding the economic outlook and the future course of the Fed’s monetary policy. Additionally, comments from Fed officials and FOMC minutes due this week will grab market focus. Apart from the Fed’s comments, housing sector and durable goods data due this week will provide new numbers for evaluating the nation’s growth profile.

Euro – European Markets

The Euro lost ground against its US counterpart in Friday’s trading session as US consumer confidence climbing to multi year highs for May. Meanwhile, the single currency is trading range bound against the US Dollar and the Pound in today’s session in the wake of a lack of decisive news to trigger risk appetite. In an unexpected move, Fitch on Friday lowered Slovenia’s long-term foreign currency rating to “BBB +” from “A-” and maintained a “Negative” outlook, citing the nation’s worsening economic fundamentals, fragile banking system and widening budget deficit. As most of the significant macro releases are scheduled in the latter half of this week, the single currency is unlikely to have independent moves in today’s trading session. Later this week, market attention will shift to manufacturing and services PMI releases across Europe. Although PMI releases are likely to show an improvement in economic activity for May, a negative print should heighten speculation of an ECB action in the near term. The German sentiment indices, as well as the final reading of the German GDP, also feature on this week’s calendar.

Other Currencies – Highlights

The Japanese Economy Minister, Akira Amari, offered some breathing space to the Japanese Yen, as he stated that aggressive stimulus measures adopted by the Bank of Japan have largely corrected the Japanese Yen’s excessive strength and a further slide in the currency could have negative effects on the nation’s economy. The Yen strengthened against the US Dollar and the Euro following his comments. Providing further support to the currency, the Japanese government, in its monthly economic report, upgraded its economic assessment on the nation’s economy for May, the first time in two months, as a weaker Yen bolstered exports and factory output. The government indicated that the nation’s economy is gradually recovering, a notable shift in view from the previous report in which the government stated that the nation still had some weak spots. On account of a light domestic economic calendar today, trade balance data due tomorrow will be keenly eyed to ascertain the impact of the recent weakness in the Japanese Yen on the nation’s exports. The Bank of Japan’s policy meeting also remains a key event on traders’ radar.