US Fails to Inspire Confidence

The surprisingly downbeat US non-farm payrolls data released on Friday provided fresh impetus to market speculation that the US Fed might resist tapering its bond purchases programme at its policy meeting next week, aiding high yield currencies. In the US, retail sales and consumer sentiment data later this week will shed light on the prospects for further policy action by the FOMC at its next meeting announcement. Market sentiment has remained supported today, as traders rejoiced positive economic data from China and have braced the possibility of the Fed continuing its QE3 programme. At home, Sterling has taken in stride Friday’s weak economic data and will be eyeing the labour market report later in the week.

Pound Sterling – UK Markets

After an initial drop following disappointing economic data in the UK, the Pound rose sharply against the US Dollar on Friday, as downbeat US non-farm payrolls report eased speculation of the Fed trimming its bond purchase programme later this month. Britain’s industrial production and trade deficit surprised market participants on the downside for July, somewhat dampening the recent positive market mood. However, the NIESR reported that the UK economic growth accelerated to 0.9% in three months to August, the fastest pace in over three years, raising hopes of an improved performance during the third quarter. Sterling has continued to remain supported against the greenback in today’s trading session. Meanwhile, the BoE policymaker, Paul Fisher, who has regularly voiced support for increasing asset purchases by the central bank, argued that a fresh round of easing would not be required, if the new forward guidance plan yields results. Against this backdrop, comments from the UK Chancellor later today will be watched closely for hints on the health of the economy. Looking ahead, the labour market report scheduled during the course of this week will be eyed for further hints on the BoE’s future policy stance.

US Dollar – US Markets

The highly anticipated US non-farm payrolls report released on Friday disappointed investors, as the number of workers added to the workforce was less than expected for August, dampening speculation of the Fed adopting steps for unwinding current stimulus measures. However, data showed that the unemployment rate slipped to the lowest level in nearly five years, largely due to the shrinking labour force. Also, earlier remarks by the Chicago Fed President, Charles Evans, asserting that he expects the central bank to completely wind down QE3 by mid-2014 and make a first rate hike by late 2015, failed to offer any support to the US Dollar. In today’s trading session, the greenback has failed to register gains against the majors, as fresh signs of growth picking up in the Chinese economy emerged, keeping risk appetite supported. With little to alter market sentiment on the domestic front today, retail sales and Reuters/Michigan consumer sentiment data later this week will be eyed for further direction. Additionally, events unfolding in Syria could prove decisive in influencing market trend during the course of the week.

Euro – European Markets

Friday’s disappointing German trade and industrial production data had little impact on the movement of the single currency, as lacklustre labour market data across the Atlantic lifted the Euro against the US Dollar. Meanwhile, in contrast to the recent upbeat economic data, the latest below par factory output and export numbers indicate that economic recovery in the currency bloc’s largest economy is moderating. Against this backdrop, this week’s German inflation report will be closely watched for further direction. In the meantime, the common currency has managed to hold on to its Friday’s gains in today’s trading session, moving higher against the greenback on back of just released better than forecast investor sentiment data. In the absence of major economic triggers today, the Euro will take direction from global economic news flows. Additionally, market participants are expected to keep a tab on the ECB’s monthly report later this week for cues on the ECB’s outlook of the economy and the likely policy stance in the future. Apart from the ECB report, industrial production, trade balance and a host of inflation numbers from peripheral economies feature on the economic calendar this week.

Other Currencies – Highlights

The revised second quarter GDP data released earlier today showed that the Japanese economy recorded a third consecutive quarter of growth, vindicating the massive monetary easing measures put in place by Prime Minister, Shinzo Abe. The upward revision to economic growth will give the Prime Minister plenty of room to go ahead with the planned sales tax hike next year. Also, in a move that will help further boost the nation’s flagging economy, news over the weekend revealed that Japan won the right to host the 2020 Summer Olympics. However, the Japanese Yen has weakened against its major peers, as market participants believe that Abe’s ultra loose policies that are being perceived to have dragged the economy out of its prolonged recession might continue in the near term. Moreover, upbeat Chinese data reduced the demand for safe haven currencies today. Going forward, minutes of the Bank of Japan’s latest policy meeting tomorrow and domestic industrial production data later this week will provide further direction to the Japanese Yen against the majors.