Crucial Week Ahead for Sterling

In the absence of major economic releases today, domestic labour market and consumer price inflation numbers will attract the most market attention. With market participants searching for clarity over the future course of interest rates in the UK, this week’s macro releases are likely to assist investors in making their assessment over the future course of monetary policy in the UK. Across the Atlantic, market focus has shifted to the US Fed Chief, Janet Yellen’s testimony due tomorrow for fresh cues over the future policy stance. In Europe, today’s Euro zone industrial production is likely to show a monthly decline, in the wake of weak industrial output reports from Euro zone nations released earlier this month.

Pound Sterling – UK Markets

The Pound has moved higher against the greenback this morning. However market participants continue to remain on edge ahead of this week’s crucial economic reports, especially consumer price inflation and labour market data. Earlier last week, the central bank’s decision to leave its monetary policy stance unchanged seems to be a step in the right direction, as this week’s data is likely to show that inflation continued to stay below the central bank’s 2% target. However, the labour market report is likely to show that the recent momentum in the sector remained intact. Furthermore, comments from some BoE policymakers, including the BoE Governor, will be keenly awaited as they testify before the Treasury Select Committee tomorrow over the June Financial Stability report. Additionally, investors in the Pound-US Dollar pair will keep a close watch on a slew of economic releases in the US during the course of the week, especially the Fed Chief’s comments tomorrow for further direction to risk appetite. With lack of economic releases in the UK and the US on Friday, the Pound edged marginally lower against the US Dollar and the Euro.

US Dollar – US Markets

With no major domestic economic releases today, the US Dollar is trading marginally lower against its major peers. Investors prefer to remain on the sidelines ahead of tomorrow’s US Fed Chief, Janet Yellen’s semi-annual testimony before the Senate. Markets will keenly monitor her testimony to ascertain whether there is any change in the US monetary policy outlook, especially after a strong June payrolls report suggested that the US labour market recovery remains on track. Additionally this week’s retail sales figures along with housing sector reports will be keenly eyed to gauge the pace of recovery during the second quarter of 2014. Furthermore, investors will get the first glimpse into the third quarter manufacturing activity with the release of New York Empire state and Philadelphia manufacturing reports scheduled later this week. The US Dollar remained in a tight range against the majors on Friday. Data indicated that the US swung to a budget surplus for June, helped by higher tax revenues and continuously improving domestic economy. Meanwhile, the US Fed official, Dennis Lockhart, indicated that he anticipates economic conditions in the US to be favourable for an increase in interest rates in the second half of 2015.

Euro – European Markets

With industrial production shrinking in most of the European regions as evidenced by data released earlier this month, today’s Euro zone industrial output report is likely to chart a similar trend, further signaling deteriorating prospects for growth. Meanwhile, the Euro has moved higher against the majors this morning. Over the weekend, Jens Weidmann, the Bundesbank Chief, urged the ECB to tighten its monetary policy at the earliest opportunity as the current interest rates are too expansive and too loose for Germany. Against this backdrop, today’s speech by the ECB Chief, Mario Draghi, will be keenly monitored for further cues on the central bank’s future policy stance. Additionally, the German ZEW survey due tomorrow will attract market attention to decipher economic prospects for Europe’s largest economy for the third quarter.

Other Currencies – Highlights

The Japanese Yen dropped against the US Dollar this morning as the Bank of Japan commenced its two day monetary policy meeting earlier today. However, the central bank is widely expected to maintain its ultra loose monetary policy in order to encourage recovery in the nation. Meanwhile, data released earlier today indicated that on a monthly basis, Japanese industrial production rebounded for May. Apart from tomorrow’s Bank of Japan’s policy meeting outcome, the monthly economic survey in Japan scheduled this week will attract moderate market attention. Furthermore, this week’s slew of economic releases in the US along with the Fed Chief’s testimony will be keenly eyed, especially considering its potential to alter risk sentiment towards the Japanese Yen going forward.