British Economy on a Strong Footing

Today’s UK construction PMI registered a more than expected rise for August following sharp gains recorded in the previous month. With yesterday’s manufacturing PMI rising to the strongest level in more than two years, traders remain optimistic that tomorrow’s services PMI data might echo a similar trend. Going forward today, the US ISM manufacturing index is likely to show a slower pace of expansion in the aftermath of subdued regional manufacturing data. However, the influence of US manufacturing data on risk sentiment remains to be seen, given growing anxiety among traders amid critical events scheduled during this week. Apart from the US non-farm payroll report, monetary policy meetings in Europe will gain market interest.

Pound Sterling – UK Markets

The Pound strengthened and briefly moved closer to the 1.56 mark against the US Dollar yesterday following robust UK manufacturing PMI data, which showed that manufacturing activity for August expanded at the fastest pace since February 2011, thereby lifting expectations of the UK economy gathering pace for the third quarter. However, a report by the BRC indicated that retail sales growth unexpectedly eased for August, thereby proving to be a minor blip to the recent run of upbeat UK economic data. Meanwhile, Sterling is still trading stronger against the majors in today’s trading session, as data just out showed a more than expected expansion in construction sector activity. With no further domestic economic triggers today, news flows from across the Atlantic will influence trading sentiment in the Pound. Traders are also looking forward to the BoE’s policy meeting scheduled later this week for further direction.

US Dollar – US Markets

In a light trading session yesterday, the US Dollar was broadly mixed against the majors amid a lack of domestic economic data on account of a holiday. Demand for the greenback was relatively subdued after fears of a probable US strike against Syria subsided, even as the US President, Barack Obama, tried to convince lawmakers to approve the military strike on the Middle East country. However, the US Congress will begin proceedings only next week, when policymakers return from the summer recess for a debate on the Syrian military strikes. In the absence of major economic triggers, the US Dollar has moved higher against the common currency in today’s trading session. Later in the day, the US ISM manufacturing index will be keenly eyed for gauging the strength of the nation’s manufacturing sector. Against the backdrop of a continued fall in initial jobless claims, the US non-farm payrolls data later this week will be a firm pointer to the timing and pace of the Fed’s tapering plan and thereby will prove crucial to driving market sentiment.

Euro – European Markets

The Euro zone recorded a second successive month of expansion in manufacturing activity, strengthening belief that the region is in for a sustainable phase of economic recovery post its prolonged recession. While Germany’s manufacturing PMI expanded less than forecast, manufacturing activity in Spain and Italy grew the most since 2011, suggesting that the region’s peripheral economies are beginning to recover. Regardless of the broad upbeat manufacturing data, the common currency failed to gain any momentum against the greenback yesterday, as investors remained cautious ahead of the ECB’s policy meeting scheduled later this week. Meanwhile, the single currency has fallen further against the US Dollar in today’s trading session, as the Spanish jobs data released earlier today surprised market participants on the downside. Going forward today, the Euro zone producer price index is likely to attract modest market interest and will shed light on inflationary pressures in the region’s economy.

Other Currencies – Highlights

The Swiss Franc has weakened against the majors despite better than forecast second quarter GDP data. The Swiss economy has shown signs of recovery lately and the upbeat GDP data achieved on the back of a rise in private consumption only adds to this optimistic view on the economy. However, the Swiss Franc failed to register any upside movement against the US Dollar, as demand for the greenback remained intact on expectations that the US Fed might begin scaling back its asset purchase programme later this month. With major domestic economic indicators out for the day, the Swiss Franc will take direction from the US manufacturing PMI scheduled later today. Going forward, Friday’s Swiss consumer price inflation and industrial production data will be eyed by traders for further cues to domestic recovery. Also, the European central bank policy meetings and a slew of important US economic releases throughout this week will influence trading sentiment.