Sterling Looks for Direction

At home, although the BoE is likely to leave its monetary policy tools untouched this week, the policy meeting is expected to gather interest amid the prevalent notion that the British central bank would be first among other major global central banks to adopt tighter policy measures. Tomorrow’s industrial production and some housing data this week will provide food for thought to policymakers before their policy decision. Across the Euro zone, mostly dismal set of economic reports in the region released lately continues to validate the central bank’s unprecedented policy measures announced last month. Meanwhile, over the weekend, the IMF Managing Director, Christine Lagarde, hinted that the agency might lower its global growth forecasts citing weak investments.

Pound Sterling – UK Markets

With lack of decisive domestic triggers today, the Pound is trading in a tight range against the US Dollar this morning. Markets will keep a close watch on tomorrow’s NIESR GDP estimate which will provide an initial insight into the pace of growth during the second quarter, especially considering last week’s mostly encouraging UK PMI reports and largely upbeat economic releases of late which continued to suggest that recovery in the nation remains on track. Meanwhile, the BoE is likely to leave its monetary policy tools unaltered in this week’s meeting. However, the UK monetary policy will be closely watched in the upcoming months, given rising prospects of a sooner-than-expected interest rate hike. Tomorrow’s UK industrial and manufacturing sector reports will also be closely watched. The Pound continued its uptrend against the Euro on Friday after the ECB Chief reiterated that the central bank is willing to use unconventional measures to boost recovery in the currency bloc, if necessary. However, today’s upbeat Euro zone Setnix investor confidence data has pared some gains in the Pound against the Euro.

US Dollar – US Markets

With an Independence Day holiday in the US on Friday, trading volume in currency markets were thin. Last week’s robust US labour market data coupled with dovish comments from the ECB Chief, Mario Draghi, continued to offer support to the greenback against the single currency. With the US unemployment rate close to the pre-crisis level, the recent trend from US economy seems to suggest that the economy is firmly on path to register a marked improvement in economic growth during the second quarter after a lull seen during the initial phase of 2014. Meanwhile, the US Dollar is trading in a tight range against the majors in today’s trading session. With no major domestic releases today, the US Dollar is likely to take direction from events unfolding across the globe. Meanwhile, the IMF Chief hinted that the agency might lower its global economic growth forecast going forward. Moving ahead this week, investors will eye speeches from various US Fed officials to verify if the upbeat labour market report has bought any changes to their monetary policy outlook. Additionally, the FOMC minutes will provide further insights into why some officials upgraded their interest rate projections.

Euro – European Markets

In a subdued trading session on Friday, dovish comments from the ECB Chief continued to weigh on the Euro against its major counterparts. Earlier last week, the ECB kept its interest rates unchanged while Mario Draghi reiterated that the central bank is committed to use unconventional measures, if required, to boost recovery in the common currency union and avoid inflation from falling further. Separately, an ECB policymaker, Benoit Coeure, reiterated that interest rates would remain low for an extended period in order to ensure stability in the region. Meanwhile, the Euro has reversed some of its early session losses and edged higher against its most of major counterparts this morning after data just out revealed an unexpected improvement in Euro zone Sentix consumer confidence for July. In continuation with Friday’s weak German factory orders data, another report released earlier today indicated that on a monthly basis, German industrial production dropped unexpectedly for May, thereby indicating that growth in the region’s largest economy remains uneven.

Other Currencies – Highlights

The Australian Dollar is trading in a tight range against the US Dollar this morning, recovering from a drop last week after the RBA Governor, Glenn Stevens indicated that currency is overvalued and warned investors about a potential housing market bubble. Additionally, last week’s upbeat US labour market report continued to add pressure on the Aussie Dollar. Separately, data released earlier today indicated that construction activity in the nation expanded for the first time in 2014, helped by an improvement in the house building sector. With no major economic releases in Australia and the US today, this week’s domestic business and consumer confidence along with the labour market data will keep investors on their toes. Additionally, this week’s slew of economy releases in China and the FOMC minutes have the potential to alter risk sentiment towards the Australian Dollar going forward.