UK Consumer Morale Improves

Rising consumer confidence in the UK and a hike to 2014 GDP forecast by the BCC earlier this week have cemented hopes for a steady recovery in the nation. Market attention has now shifted to the BoE policy meeting scheduled next week amid signs of debate among policymakers and the recent contrasting comments by the Governor. Across Europe, next week’s ECB meeting will be keenly watched, if today’s inflation report surprises on the downside. Additionally, markets will keenly watch developments in Eastern Europe after the Ukrainian President stated that Russian forces have invaded the region. Across the Atlantic, an upward revision to the US second quarter GDP data has boosted expectations of an early hike in interest rates.

Pound Sterling – UK Markets

Improving confidence among consumers in the UK is another sign that the economy might continue its steady pace of recovery this year, especially after the BCC raised its 2014 GDP estimate earlier this week. The improved confidence was evident in the report released overnight which stated that GfK consumer morale rose more than expected for August to the highest level since March 2005. As a result, the Pound is trading higher against the majors this morning. Additionally, data released by Nationwide earlier today indicated that house prices in the UK rose unexpectedly for August, in contrast with recent signs of some cooling in the housing market. With lack of UK macro releases today, next week’s slew of UK economic data, especially PMI reports will be keenly eyed. Additionally, in the wake of contrasting comments from the BoE Governor this month along with signs of disagreement among policymakers at the last policy meeting, the BoE’s policy meeting scheduled next week will be keenly watched for further direction. The Pound was broadly lower against the US Dollar yesterday amid optimism surrounding encouraging revised US GDP report.

US Dollar – US Markets

The greenback gained ground against the majors in yesterday’s trading session following the release of the revised GDP data which showed that economic growth in the US rebounded at a stronger than expected pace for the second quarter. The upwardly revised GDP report hinted at the prospects of a sustainable underlying strength in the US economy. Additionally, initial jobless claimants in the US remained unexpectedly below the 300K mark for a second week in a row, bolstering prospects of an upside surprise in next week’s official labour market report. However, the US Dollar retraced some of its recent gains against the Japanese Yen in yesterday’s trading session amid signs of further escalation in crisis in Eastern Europe. The US Dollar is trading on a weaker footing against the Pound this morning. The final reading of the Reuters/Michigan consumer confidence index scheduled later today in the US will be keenly eyed and is expected to show an improvement for August amid signs of improving domestic spending. Meanwhile, in a noteworthy development, the IMF urged the US to hike its minimum wage rate to boost income among locals.

Euro – European Markets

The Euro lost ground and fell below the 1.32 mark against the US Dollar in yesterday’s trading session amid signs of escalating geopolitical tensions in Eastern Europe. Fears of a full scale Russian invasion in Ukraine has strengthened speculation of another round of economic and political sanctions by the western nations on Russia. Additionally, data released yesterday showed that the number of unemployed people in Germany rose unexpectedly for August. Most of the surveys among businesses and consumers in the Euro zone showed a deterioration in domestic conditions, as tensions in Eastern Europe continued to weigh on investors’ risk appetite. Meanwhile, the flash consumer price inflation in Germany came in line with market estimates for August, thereby temporarily calming speculation that the ECB would resort to unconventional measures in the upcoming monetary policy meeting. The Euro is trading under pressure against the majors this morning. Data released earlier today revealed that German retail sales declined for July. Going forward today, Euro zone inflation and labour market data are likely to influence the trend in the Euro against the majors.

Other Currencies – Highlights

The Japanese Yen lost ground against the greenback in today’s trading session amid mixed domestic economic releases. Data released earlier today showed that Japan’s consumer price inflation eased marginally for July, but in line with market estimates. However, with recent claims by the Bank of Japan Governor, Haruhiko Kuroda, that the pace of inflation remains in line with the central bank’s forecast, market concerns have now shifted to the nation’s soft labour market report for July which showed that the unemployment rate rose for the second consecutive month. Additionally, another report revealed that household spending dropped for the fourth straight month as the April 2014 sales tax hike continued to dampen domestic spending. Going forward today, the US Reuters/Michigan consumer sentiment survey will be an important economic release to provide further direction to the Japanese Yen against the greenback. However, with renewed tensions in Eastern Europe, the Japanese Yen is likely to remain supported against most its major counterparts.