UK Industrial Production Unexpectedly Declines

Data just released indicated that on a monthly basis, both industrial and manufacturing output surprisingly dropped for May, in contrast with the upbeat manufacturing sector PMI released last week. This has exerted pressure on the Pound against the majors as the decline in factory output was the biggest since January 2013. Against this backdrop, today’s UK NIESR GDP estimate will attract increased market attention for cues on the health of the economy. In the Euro zone, subdued German economic data indicates that recovery remains fragile and uneven which is likely to add pressure on the ECB. Across the Atlantic, markets will keep an eye on tomorrow’s FOMC minutes which might offer further insights into policymakers’ view on the future course of interest rates.

Pound Sterling – UK Markets

The Pound is trading under pressure against its major counterparts and slipped below the 1.71 mark against the greenback this morning after data just released indicated that both industrial and manufacturing production in the UK unexpectedly declined for May despite a continuous improvement in the nation’s manufacturing sector. This coupled with the recent weak services PMI data would strengthen market speculation of keeping the monetary policy stance accommodative for the near future. The BCC also warned that prematurely raising interest rates might disrupt economic recovery in the nation. However, the agency indicated that growth in the region remained stable during the second quarter. Against this backdrop, market focus has now shifted onto today’s NIESR GDP estimate which would provide initial insights over the pace of growth during the second quarter. Meanwhile, Sterling dropped against the Euro yesterday following a surprise improvement in Euro zone Sentix consumer confidence, although gains were limited due to disappointing German industrial production data.

US Dollar – US Markets

The greenback is trading in a tight range against most of its major counterparts in today’s trading session. Markets will keep a close watch on today’s NFIB small business confidence data which is likely to show an improvement for June, especially after last week’s ADP employment numbers revealed a pick-up in small business employment. Additionally, investors await comments from a dovish Fed policymaker, Narayana Kocherlakota for further insights, particularly for any changes to the Fed’s view in the wake of last week’s robust US non-farm payrolls report for June. Although this week seems to be quiet especially in terms of macro data, US markets will see the beginning of earnings season which is expected to attract market attention to gauge whether the strength in equity markets is backed by encouraging fundamentals. With lack of domestic economic releases yesterday, the US Dollar advanced against the Pound in a subdued trading session while it edged lower versus the Euro following upbeat Euro zone Sentix consumer confidence data.

Euro – European Markets

After scaling the 1.36 mark against the US Dollar, the Euro failed to cling onto its gains, as economic releases from Germany seem to suggest that the Euro zone economy could face fresh turbulence on account of signs of a slowdown in the region’s largest economy. In the aftermath of disappointing data from the German manufacturing sector, today’s data showed a drop in German imports and exports for May. With the latest economic releases from Germany displaying signs of fatigue, it remains to be seen if the ECB’s latest measures help in reviving the region’s economy. With no major decisive domestic triggers across Europe today, market participants will keep a close watch on today’s UK NIESR GDP estimate along with tomorrow’s FOMC minutes for further direction to risk appetite. The Euro advanced against the majors yesterday following a surprise improvement in Euro zone Sentix consumer confidence for July, mainly helped by the unprecedented policy measures announced by the ECB last month to boost recovery in the currency bloc and stop inflation from falling further. However, gains were limited following weak German industrial production report in May.

Other Currencies – Highlights

The Swiss Franc is trading lower against the US Dollar this morning following disappointing domestic macroeconomic data. Data showed that consumer price inflation in the nation unexpectedly eased for June while retail sales surprisingly dropped for May, thereby raising concerns over the health of the nation’s economy. However, the Swiss Franc advanced against the greenback yesterday after the unemployment rate remained stable for June. Meanwhile, Fritz Zurbruegg, a Swiss National Bank official in an interview yesterday, reiterated comments of the SNB last month that inflation is likely to remain low in the region for a prolonged time, although there is no sign of deflation. With no other important domestic macro data today, markets will keep a tab on tomorrow’s minutes from the US Fed’s latest policy meeting for further direction to risk appetite.