Central Bankers Reaffirm Dovish Stance

Regardless of a notable recovery in the British economy over the past few months, MPC members continue to sound dovish, as they seek further improvement in employment before considering a rate cut. Tomorrow’s revised second quarter GDP data will provide further food for thought to Mark Carney for ascertaining the probable timing to change current policy stance. Elsewhere, an ECB official has reiterated that additional liquidity measures will be adopted to support the economy, if required. Across the Atlantic, things are looking a little less rosy, with dwindling consumer sentiment and manufacturing activity adding credence to arguments favouring the continuation of QE3. Against this backdrop, today’s US durable goods orders data will be closely watched.

Pound Sterling – UK Markets

The Pound was broadly lower against the US Dollar yesterday after mortgage approvals data in the UK missed market expectations for August, although it climbed to the highest level since December 2009. The weakness in Sterling can be partly attributed to comments from BoE policymakers, David Miles and Paul Tucker, who reiterated the central bank’s commitment to maintain low interest rates for an extended period. Although two MPC members acknowledged that the UK economic recovery is consolidating, high unemployment remains a major stumbling block to raise interest rates anytime soon. However, the Pound-US Dollar pared some of its losses later in the day following the release of mostly weak US economic data. Amid a lack of decisive domestic economic triggers, the Pound was trading in a tight range against its peers this morning. A positive print of the CBI retail sales just released, has bolstered the Pound and is likely to provide support for Sterling against the majors ahead of tomorrow’s domestic consumer confidence and the revised second quarter GDP data. Across the Atlantic, the durable goods orders report will provide further direction to the Pound later today.

US Dollar – US Markets

Yesterday’s largely downbeat macro data raised further alarm bells about the sustainability of an economic recovery in the world’s largest economy. Consumer confidence dipped more than expected for September, as outlook for employment and earnings worsened, while manufacturing activity in the Richmond region declined sharply. However, the S&P/Case-Shiller report showed that house prices in the US climbed to a seven-year high for August, confirming a pickup in the housing sector despite rising mortgage rates. Against this backdrop, today’s new home sales data will be keenly watched for further insights into the housing market recovery. Meanwhile, the greenback is looking for direction against the majors in today’s trading session. In the wake of dismal US manufacturing data released recently, market participants will keep a tab on the durable goods orders report later today for further cues on the strength of the manufacturing sector. Furthermore, traders are looking forward to a raft of domestic macro releases tomorrow, particularly the revised second quarter GDP reading. Additionally, news flows surrounding debt ceiling talks could sway market sentiment in the near term.

Euro – European Markets

The common currency traded range bound against the US Dollar yesterday following mixed economic data from both sides of the Atlantic. Although business sentiment in Germany fell short of expectations, the improved reading points toward a sustained phase of economic growth. Furthermore, upbeat consumer confidence data released earlier in the day has further highlighted that the Euro zone’s largest economy is on the mend. However, Ewald Nowotny, an ECB board member, opined that given the current fragile economic situation in the region, an exit from the current loose monetary policy may be inappropriate at this time. Echoing similar views, the OECD warned that the Euro zone remains "a considerable source of risk" to the global recovery, regardless of its recent progress. The Euro has failed to gain traction against the greenback in today’s session despite positive German consumer sentiment data. Apart from speeches by a couple of ECB policymakers, US durable goods orders and housing market data will provide further direction to investors’ risk appetite in today’s trading session.

Other Currencies – Highlights

The New Zealand Dollar has weakened against its major counterparts this morning following the release of disappointing trade data which showed that the trade deficit widened more in August than in nearly five years on the back of falling export milk volumes and record imports owing to a one-off purchase of an offshore drilling rig. Making matters worse, Fonterra, the nation’s biggest dairy exporter, reported dismal full year earnings. The Kiwi Dollar has steadily moved lower against the majors over the past few days amid growing uncertainty over the future course of the Fed’s asset purchases programme, especially in the aftermath of recent downbeat US economic data and disparity in views expressed by influential Fed officials. A lack of domestic news will see the New Zealand Dollar take direction from news flows emanating from both sides of the Atlantic for the rest of the week.