UK Chancellor Acknowledges Recovery

In conjunction with recent upbeat UK economic data, yesterday’s encouraging comments from the British Chancellor about the economy provided a further shot in the arm for Sterling investors. With future UK monetary policy being tied to the unemployment rate, the labour market report due tomorrow will be subject to close scrutiny in gauging the probable timing of a hike in interest rates. Across the Atlantic, the US President appears to have softened his stance for a limited military strike on Syria after Russia demanded Syria place its chemical weapons under international control. With not much on the economic releases menu today, Barack Obama’s speech to the nation will be closely followed for further direction.

Pound Sterling – UK Markets

The Pound rose to a near three-month high and briefly breached the 1.57 mark against the US Dollar, as Friday’s disappointing US jobs data fuelled uncertainty among traders with regards to the Fed’s stance on its September tapering plan. Additionally the UK Chancellor, George Osborne, supported the BoE Governor’s forward guidance policy and acknowledged that the British economy is “turning a corner”. However, he expressed concern that any premature tightening of monetary policy and discarding the government’s austerity measures would spell disaster for the recovering UK economy. Meanwhile, Sterling’s recent upward momentum against the Euro was arrested yesterday on account of upbeat Euro zone and Chinese economic data. In today’s trading session, the Pound is searching for direction against both the greenback and the Euro. With a relatively light economic calendar today, markets are looking ahead to the UK labour market report tomorrow for further direction, especially after the forward guidance approach adopted by the BoE. The US President’s speech later today regarding a possible intervention in Syria will gain market attention, given its overall influence on currency markets.

US Dollar – US Markets

“Risk-on” sentiment was the order of the day yesterday, as Friday’s US non-farm payrolls report continued to weigh on traders’ minds and dragged the US Dollar lower against its major counterparts. The unexpectedly disappointing report has confounded traders as to whether the Fed will go ahead with its partial stimulus withdrawal plan later this month. However, the San Francisco Fed President, John Williams - a noted dove - opined that last month’s disappointing jobs report does not essentially justify the Fed from placing its tapering plan on hold. Meanwhile, the greenback has failed to register meaningful gains against the majors in today’s trading session following upbeat economic releases from China. Additionally, concerns over an imminent US-led military attack on Syria eased after Barack Obama indicated that he would put the consideration for a military strike on Syria on hold, if the country was prepared to place its chemical weapons under international control. Against this backdrop, the President’s address to the nation later today will be eyed for more clarity on the government’s future course of action. Later today, the NFIB business optimism data is unlikely to alter market sentiment, as investors keenly await next week’s Fed policy meeting.

Euro – European Markets

The single currency strengthened against the US Dollar yesterday, as uncertainty over the Fed trimming its bond purchases later this month increased the demand for high yielding assets. Risk appetite was further boosted, as positive Chinese economic data strengthened market hopes that the slowdown in the world’s second largest economy is moderating. Furthermore, a sharp rise in Euro zone investor confidence supported the Euro against the majors yesterday. However, disappointing French industrial production data and weak Italian revised second quarter GDP numbers released earlier today have once again highlighted difficulties faced by Euro zone economies in recovering from their prolonged economic crisis. Following the release of dismal data, the common currency has failed to move higher against the majors in today’s trading session. With not much on the economic calendar today, market participants will keep a tab on events unfolding in the Middle East for further direction to risk appetite. Also, tomorrow’s German consumer price inflation data will hold market interest.

Other Currencies – Highlights

A raft of buoyant economic data emerging from China, Australia’s major trading partner, has proved a boon for the Australian Dollar, as it continues the recent upward trend against the majors. Further lending a helping hand, data showed that the number of home loans approved in Australia continued to rise for July, while the nation’s business confidence rose sharply for August. The strength in the Aussie Dollar can also be attributed to the increased risk appetite among traders after the downbeat US jobs report raised speculation that the Fed might resist from scaling down its asset purchase programme later this month. Meanwhile, Australia tries to adjust to the changed political environment following the victory of the Liberal Party’s Tony Abbott over incumbent Prime Minister, Kevin Rudd, at the weekend. Going forward, investors are expected to closely follow tomorrow’s consumer confidence data for hints on consumer behaviour in the month ahead. Furthermore, the domestic employment data scheduled for release later in the week and news flows emanating from both sides of the Atlantic will give further direction to risk appetite.