British Industrial Output Data

The industrial and manufacturing production numbers just out has surprised market participants on the downside, in line with the weak manufacturing activity report released last week. Going forward today, today’s NIESR GDP estimate will attract increased market attention, especially after the agency earlier hiked its 2014 economic growth forecast on the domestic economy. Across the Atlantic, market expectations for a sooner than anticipated rate hike were boosted following upbeat ISM services and factory orders data, further supported by hawkish comments from a Fed official. In the Euro zone, the recent macro data has been weak partly due to escalating tensions in Eastern Europe and is likely to add pressure on the ECB ahead of its policy decision scheduled tomorrow.

Pound Sterling – UK Markets

The just released data has indicated that both industrial and manufacturing production in the UK rebounded at a slower than expected pace for June, leading the Pound to trade under pressure against the majors this morning. Additionally, data released by Halifax earlier today indicated that house prices continue to rise in double digits for July, in contrast with last month’s data from other agencies. These dismal numbers have put a lid on market expectations for a sooner than expected rate hike which received a boost following encouraging construction and services PMI reports released earlier this week. Against this backdrop, investors will keep an eye on the outcome of BoE policy meeting tomorrow for further direction. Going forward today, markets await today’s NIESR GDP estimate, especially after the agency hiked its 2014 GDP growth forecast on the UK economy. Yesterday, the Pound advanced against the majors following upbeat UK services PMI report which expanded at its fastest pace since November 2013. However, Sterling’s gains against the US Dollar were capped following positive US macro data.

US Dollar – US Markets

The US Dollar advanced against the Euro yesterday after the ISM services activity data exceeded market expectations for July. The activity expanded at its fastest pace in nine years, boosted by growth in business activity and employment, thereby indicating that economic recovery in the nation remains intact during the third quarter. Against this backdrop, Richard Fisher, a Fed official, indicated that if further economic data continues to be as strong as services data, the US central bank is likely to hike interest rates sooner than it projected in June 2014. Additionally, factory orders rebounded more than expected for June, aided by an increase in demand across the board. Furthermore, soft services PMI data from most of the European economies and China along with escalating geopolitical tensions in Ukraine kept the US Dollar supported. In today’s trading session, the US Dollar has continued to trade on a firmer footing against most of its major counterparts. With no major economic releases in the US, markets will keep a tab on domestic trade balance numbers as any surprise might have an impact on the nation’s revised second quarter GDP numbers.

Euro – European Markets

Data released earlier today revealed that on a monthly basis, German factory orders slumped unexpectedly for June, dragged down by ongoing geopolitical tensions in Ukraine. Against the backdrop of mostly weak data across Europe, market attention has now shifted to the two-day ECB monetary policy meeting commencing today for further direction. The central bank is widely expected to refrain from altering its current policy stance as it is anticipated to assess the impact of unprecedented measures adopted in its June meeting. Meanwhile, the Euro is trading in a tight range against its major peers this morning. Investors will keep a close watch on developments in Eastern Europe, as concerns between Ukraine and Russia escalated amid reports that the latter has started positioning military forces near the Ukrainian border. The Euro dropped below 1.34 mark against the US Dollar yesterday following dismal services PMI reports from most of the European economies, thus raising doubts over the growth prospects of the Euro bloc. Additionally, upbeat US ISM services and factory orders data suggested that the US economy continues to recover and boosted hopes for a sooner than expected rate hike in the US.

Other Currencies – Highlights

The Swiss Franc lost ground against the greenback yesterday. The UBS real estate bubble survey in Switzerland released yesterday indicated that prospects of an asset bubble like situation in the nation had strengthened slightly for the second quarter. Although the SNB Vice President, Jean-Pierre Danthine, stated last month that an imbalance in the domestic housing market was seen stabilising, yesterday’s data has further heightened market concerns. Additionally, the US ISM services activity and factory orders data surpassed market expectations, further pressurising the Swiss Franc against the US Dollar. Domestic data released earlier today showed that consumer prices continued to drop for July, in line with market expectations. The inflation data had little impact on the Swiss Franc and it traded in a tight range against the greenback this morning. Moving ahead, this week’s Swiss unemployment data is expected to show a steady unemployment rate for July, however, a downside surprise could weigh on the Swiss Franc against the majors.