Opinion that the UK economy is gaining momentum received further impetus after data just released showed that manufacturing activity improved more than expected last month, aiding Sterling against the majors. This coupled with robust manufacturing data in China and Europe suggests that a global economic recovery is on the cards. With a light European economic calendar ahead and US markets closed today on account of a holiday, there is little to alter market sentiment going forward in today’s trading session.
For the week ahead, most market attention will revolve around the European central bank meetings and the crucial non-farm payrolls report in the US for further direction to risk appetite.
Pound Sterling – UK Markets
Economic data released on Friday further strengthened market perception that the UK housing market is recovering. Both mortgage approvals as well as Nationwide house prices data came in better than expected. However, a robust Reuters/Michigan consumer confidence reading in the US boosted speculation that the US Fed might taper its bond purchases this month, leading the Pound to edge lower versus the US Dollar on Friday.
However, Sterling has moved above the 1.55 mark against the greenback this morning, supported by encouraging Chinese manufacturing data released over the weekend. Also, just out, manufacturing PMI in the UK has indicated that the manufacturing sector expanded at a faster than expected pace for August, further supporting the Sterling-Euro pair. Earlier in the day, the Hometrack survey showed accelerated growth in UK house prices, as demand continued to outpace the number of homes available for sale. Going forward, investors will keep an eye on the BRC retail sales report due overnight to ascertain if higher consumer confidence transpired into strong retail spending. Also, the BoE policy meeting and a raft of crucial economic data during this week will prove vital for the direction of the Pound against the majors.
US Dollar – US Markets
Upbeat economic data in the US, coupled with uncertainty over a possible US intervention in Syria, kept the US Dollar higher versus the majors on Friday. A better than expected upward revision to US consumer morale for August was more than enough to limit any downside in the greenback during the day. Additionally, an improvement in Chicago manufacturing activity data reinforced market expectations of a recovery in the US economy.
Meanwhile, the US Dollar has pared gains versus its major counterparts today, as “risk-on” sentiment among traders received a boost following upbeat PMI data in China, UK and the Euro zone. Against this backdrop, the ISM and Markit manufacturing PMI releases tomorrow will be keenly eyed by investors to ascertain if the positive stream of economic data in the US continues for the third quarter. Additionally, a delay in a potential US strike on Syria due to pending Congressional approval alleviated investors’ fears over another conflict in the Middle East. For the week ahead, the non-farm payrolls report will prove to be the most decisive factor for the movement in the US Dollar, as it will clear uncertainty surrounding the timing of QE3 tapering.
Euro – European Markets
Despite a positive show of sentiment indices in the Euro zone on Friday, the single currency failed to register gains versus the US Dollar. The consumer confidence data released across the Atlantic also weighed on the Euro, as it boosted the demand for the US Dollar.
The picture in Europe looks rosier, as manufacturing PMI data released earlier today showed an accelerating trend in activity for August. With the European Central Bank (ECB) officials indicating no major shift in the central bank’s current monetary policy stance, the ECB’s monetary policy meeting due this week will be gauged for hints of an economic recovery in the Euro-area. Additionally, following today’s robust manufacturing numbers, investors will have their eyes set on services activity data due Wednesday to depict the overall development in the region. With little on the European macro calendar and US markets closed today, with market participants expecting a thin trading session going forward.
Other Currencies – Highlights
The Japanese Yen is trading under pressure against the majors this morning, as the nation’s Prime Minster, Shinzo Abe, received backing for sales tax hike from most members of panels advising the government. Though this move may help Japan to shore up its balance sheet, the consumption side of the economy may get affected and could push the economy back into contraction. Additionally, upbeat Chinese manufacturing data and easing fears of an imminent attack on Syria prompted traders to move away from safe haven currencies.
On the macro front, data showed that capital spending in Japan came in better than expected for the second quarter, providing evidence that the Prime Minister’s policies aimed at boosting the economy are yielding results. Going forward, investors will focus on the Bank of Japan’s interest rate decision due later this week. Additionally, news flows emanating from overseas economies will provide direction to the Japanese Yen against the majors.