UK Services Activity Expands Further

The just released UK services sector data has surprised market participants on the upside and pushed the Pound higher against the US Dollar this morning. Additionally, the NIESR upwardly revised its 2014 GDP forecast on the domestic economy. Market attention has now shifted to the BoE monetary policy meeting scheduled later this week for further cues to risk appetite. With most of the European manufacturing and services activity reports disappointing investors, this week’s ECB policy meeting will be keenly watched for signs of discussion on the amount of time required by the recently unveiled stimulus measures to boost recovery in the Euro bloc. Additionally, events unfolding in Ukraine will be eyed after Russia initiated a military exercise on the Ukrainian border.

Pound Sterling – UK Markets

Data just released has indicated that activity in Britain’s dominant services sector expanded more than expected for July, thereby leading the Pound to trade higher against the majors and move close to the 1.69 mark against the US Dollar this morning. Today’s data is in line with yesterday’s construction activity report while it is in contrast with last week’s manufacturing PMI numbers. With the British economy gaining traction as evident by last month’s second quarter GDP data and today’s PMI data, market participants now keenly await this week’s BoE policy meeting to gauge the amount of slack still prevalent in the British economy. The NIESR also raised its 2014 economic growth estimate on the UK economy to 3% from its earlier forecast of a 2.9% growth. However, the central bank is unlikely to alter its current policy stance mainly due to subdued inflation and wage growth numbers. In yesterday’s trading session, the Pound recovered some of its previous session losses and nudged higher against the US Dollar. Data released in the UK revealed that construction activity expanded at its fastest pace in nearly 11 years for July.

US Dollar – US Markets

In a subdued trading session yesterday, the US Dollar remained in a tight range against its major counterparts. On Friday, data indicated that the US economy added less than expected jobs while the unemployment rate ticked surprisingly higher for July. The weak labour market data has dented market hopes of a sooner than expected hike in interest rates, especially in the wake of comments from the Fed Chief indicating that the prospects of rate hike is dependent on the conditions prevalent in the nation’s labour market. Against this backdrop, market participants will keep close watch further economic data to ascertain the US central bank’s future course of action. The greenback is trading in a tight range most of its major peers this morning. Investors will keep a tab on today’s ISM services activity report which is likely to show an improvement for July, in line with last week’s encouraging manufacturing report. Meanwhile, data released earlier today revealed that services activity in China eased sharply to its lowest level in nearly nine years for July, thereby indicating that recovery in the world’s second largest economy continues to remain fragile.

Euro – European Markets

The Euro remained in a tight range against the US Dollar yesterday. Data indicated that Sentix consumer confidence in the Euro zone deteriorated more than expected for August to its lowest level in a year, as the European Union’s decision to impose economic sanctions on Russia weighed on the region’s growth prospects, especially the region’s largest economy. However, the prices of goods leaving Euro zone’s factory gates rose for the first time since December 2013, thereby pointing that the region might not sink much deeper into a phase of low inflation that might obstruct its overall recovery. The Euro is trading lower against the majors this morning. In line with last week’s dismal manufacturing activity reports from most of the European nations, today’s services PMI data from the Euro zone has also disappointed markets, thereby adding further pressure on the ECB ahead of its policy meeting scheduled later this week. Investors now await today’s Euro zone retail sales numbers which is expected to show an improvement for June. Additionally, events unfolding in Ukraine will keep investors on their toes.

Other Currencies – Highlights

In a quiet trading session yesterday, the Kiwi Dollar nudged higher against the greenback following the release of last week’s soft US labour market report for July. However, gains in the Kiwi Dollar were limited as markets await crucial domestic data on dairy prices and employment. Fonterra Co-operative Group’s GlobalDairyTrade auction will gather considerable market attention tomorrow as it will help markets to gauge on how New Zealand’s largest exporter is performing after dairy prices fell recently to its multi-month lows. Separately, in an overnight economic release today, New Zealand’s unemployment rate is expected to decline, with an anticipated improvement in labour costs for the second quarter. Meanwhile, the HSBC non-manufacturing PMI data released earlier today showed that the pace of services sector activity in China fell to multi-year lows, thereby limiting prospects of an upside in the Kiwi Dollar against the majors in the session ahead. Additionally, markets will eye the US ISM non-manufacturing PMI numbers for July for further direction.