All Eyes Across the Atlantic

The greenback remained well supported this morning amid persistent speculation that the Fed might begin to taper its asset purchases during the course of the year. With a flurry of US economic data awaited this week, the direction of currency markets will be closely influenced by macro economic trends from the US economy. Today’s consumer confidence, regional manufacturing and housing data from the US will be subject to close scrutiny. Meanwhile, external news flow is likely to have a greater influence on the Pound and the Euro today, largely in the absence of major domestic cues. However, developments ahead of next week’s policy meetings in Europe and the UK will remain key trend setters going forward.

Pound Sterling – UK Markets

The Pound is trading in a tight range against the US Dollar and the Euro in today’s trading session, as market participants remain on the sidelines amid a lack of triggers. Meanwhile, in line with the improvement in the broader UK economy, the nation’s housing sector continues to tread the path to recovery, as data from the BBA released on Friday revealed a rise in mortgage loans for April, reflecting the positive impact of the FLS scheme jointly undertaken by the UK government and the BoE. Moreover, Hometrack yesterday reported that house prices in the UK surged the most in six years this month, supported by favourable market dynamics. In this context, Nationwide house prices and mortgage approvals data due later this week will be keenly eyed for further updates. This week, markets are also expected to focus on GfK consumer confidence and CBI reported sales for more insights into the retail sector growth. With a seemingly lacklustre day ahead, developments taking place in overseas markets could prove vital in determining the direction of Sterling against the majors.

US Dollar – US Markets

On Friday, the US Dollar registered gains against its major counterparts, as upbeat durable goods orders data fuelled speculation of the Fed winding down its massive stimulus measures sooner than expected. Meanwhile, a lack of decisive triggers prompted investors to tread cautiously, leading the greenback to trade in a tight range in yesterday’s trading session. The same trend has continued this morning too. Durable goods orders data revealed that US orders for long lasting goods rebounded for April, buoyed by a rise in demand for military and civilian aircraft as well as an increase in business investment, thereby signaling that the nation’s manufacturing sector, which had been weighing on growth in the recent past, is showing signs of improvement. For further cues on the state of the manufacturing sector, markets are expected to keep an eye on the Richmond and the Dallas manufacturing indices due later today. Moreover, the consumer confidence indicator from the US remains a key feature on the economic calendar today in order to assist in gauging the latest economic trends. Additionally, S&P/Case-Shiller home price index will garner modest market attention.

Euro – European Markets

Across Europe, traders breathed a sigh of relief on Friday, as upbeat German sentiment indices and recent PMI releases brought renewed optimism surrounding the Euro region economy. However, the single currency reversed some of its gains against the US Dollar after upbeat US durable goods data released on Friday further strengthened speculation that the Fed might roll back its aggressive stimulus measures soon. Yesterday’s range bound trend has continued this morning as investors await further triggers to risk appetite. On Friday, data indicated that German consumer confidence climbed to a five-year high for June, as falling unemployment and a benign inflation outlook outweighed concerns surrounding the sovereign debt crisis and weak economic growth. Against this backdrop, unemployment data in Germany due tomorrow, ahead of the Euro zone employment report later this week, is expected to grab market focus. With a relatively calm day ahead in Europe, market sentiment is likely to be guided by news flow emanating from the US. Additionally, with Spain witnessing a rise in borrowing costs at its recent auction, Italian bond auctions due later today will be watched for insights into investor risk appetite.

Other Currencies – Highlights

A dismal trade balance report outweighed improved labour market data for the first quarter of 2013 in Switzerland and has led the Swiss Franc to trade on a weaker footing against the greenback and the Euro in today’s trading session. Data released earlier today revealed that trade surplus in Switzerland unexpectedly narrowed for April, largely affected by a steep fall in exports due to sluggish demand in Europe, the nation’s biggest trading partner. In today’ session, a barrage of key economic releases from the US will hold significance for the near term trend in currency markets. Additionally, markets are expected to keep a tab on tomorrow’s UBS consumption indicator for further clarity on the Swiss economy. However, the Swiss first quarter GDP data due on Thursday will grab most of the market attention this week and should prove decisive for the Swiss Franc’s near term trend.