Dovish ECB Comments Support Sterling

Although yesterday’s services PMI numbers were in contrast with other PMI readings released earlier this week, Sterling managed to shrug off this disappointing report amid dovish comments from the ECB. Market attention has now shifted to next week’s BoE monetary policy meeting for further cues on the timing of interest rate hikes and the NIESR GDP estimate which would provide an initial insight into the nation’s economic performance during the second quarter. Across the Atlantic, yesterday’s labour market report showed a significant improvement following a slowdown seen earlier this year. In the Euro zone, the ECB held its interest unchanged while keeping the door ajar for unconventional policy measures.

Pound Sterling – UK Markets

The UK’s dominant services sector showed a slowdown in activity for June, although it continues to remain in the expansion phase. With domestic economic reports showing signs of a steady recovery during the second quarter, markets continue to expect that the central bank might hike interest rates sooner than expected. Against this backdrop, the focus has now shifted onto the BoE monetary policy meeting scheduled next week for further cues on the timing of a probable interest rate hike. Additionally, investors will keep a close watch on next week’s NIESR GDP estimate for the second quarter for initial insights into the economic performance of the nation. Although the housing market remains a near term threat for the British economy, traders will look forward to the Halifax housing report due next week for any signs of cooling in the housing sector. Yesterday, the Pound advanced against the Euro following the ECB’s decision to keep its key interest rate unchanged while remaining committed to use unconventional policy measures in future to boost recovery in the nation.

US Dollar – US Markets

The encouraging non-farm payrolls report showed that US employers added more than 200k jobs for the fifth consecutive month while the unemployment rate dropped unexpectedly for June, thereby suggesting that the US labour market continues to recover at a steady pace after a slowdown witnessed for the first quarter. However, the ISM services data surprisingly slowed last month, despite a surge in new orders. The mixed set of macro data in the US lately validates the Fed’s move to hold interest rates unchanged for some more time, although the overall US economy looks in a position to rebound during the current quarter. The greenback advanced against the Euro following upbeat labour market report and dovish comments from the ECB President, Mario Draghi. With no major economic releases in the US today on account of a holiday for Independence Day, the US Dollar is expected to remain in a tight range against the majors. In the forthcoming week, markets will keep a close watch on the minutes of the US Fed’s latest monetary policy meeting along with the Reuters/Michigan consumer confidence report for further direction to risk appetite.

Euro – European Markets

The Euro dropped against the majors yesterday after the ECB left its key interest rate unchanged at 0.15% and kept its deposit rate and marginal-lending rate untouched. Mario Draghi, the ECB Chief, in his post meeting conference resisted calls to engage in “quantitative easing” as central bankers in the US, the UK and Japan have done, although he reiterated that policymakers are unanimously committed to use “unconventional measures” in their mandate, if the inflation rate remains low for a longer than expected period. In a surprise announcement, the ECB indicated that they would meet every six weeks from January 2015 instead of the current four weeks and would publish the minutes of those gatherings. The Euro continues to trade on a weaker footing against the majors in today’s trading session. Data released earlier today indicated that German factory orders eased for May due to a drop in new orders. With no major economic releases across the globe today, markets will keep a tab on next week’s key German macro data, especially industrial production, trade balance and final inflation data for further direction.

Other Currencies – Highlights

Data released yesterday indicated that trade deficit in Canada narrowed for May, helped by an increase in exports. Meanwhile, the Canadian Dollar reversed its early session losses and moved higher against the greenback in yesterday’s trading session, despite strong US jobs data for June. Separately, data released earlier this week indicated that the Canadian GDP numbers unexpectedly remained unchanged for April, although encouraging inflation data released last month supported the Canadian Dollar and kept markets speculating over the central bank’s future policy stance. The Canadian Dollar is trading in a tight range against the greenback in today’s trading session. With no economic releases from the US or Canada today, markets will keep a tab on next week’s Canadian building permits and the Bank of Canada’s business outlook survey for further direction to the Canadian Dollar against the majors.