US Housing Data in Spotlight

The bulk of yesterday’s trading session focus shifted onto the single currency, as the Euro registered losses despite no alarming triggers during the intra-day session. With the Euro perched close to a two year low against Sterling, the trends from forex markets suggest that traders are steadily taking note of unsettling news flows emanating from the Euro zone economy and the financial system. Although labour market data in the UK displayed exuberance yesterday, the Pound weakened against the greenback, as these figures strengthened market perception that slower wage growth in Britain could prompt the BoE to delay a hike in interest rates. Across the Atlantic, today’s US housing data will hold significance in order to gauge the all-round performance of the economy.

Pound Sterling – UK Markets

Despite a more than expected decline in the number of people claiming jobless benefits in the UK for June, the Pound failed to register gains against the US Dollar in yesterday’s trading session. Additionally, on expected lines, the UK unemployment rate dropped to 6.5% for the three months period to May, the lowest level since January 2009. Although the recent upbeat economic reports have raised calls for an earlier than expected hike in interest rates, slower wage growth continues to undermine the central bank’s rate hike expectations. Additionally, gains in the Pound were capped after the Fed Chief indicated that the central bank might raise interest rates sooner than expected, if the domestic labour market continues to be on track. With no major decisive domestic triggers today, the Pound continues to trade on a weaker footing against the US Dollar this morning. Meanwhile, a speech from the BoE Deputy Governor, Jon Cunliffe, due later today will be eyed for further cues over the central bank’s future policy stance. Markets will also keep a close watch on today’s US housing data to gauge the pace of recovery in the sector.

US Dollar – US Markets

The US Dollar continued to trade firmer against the Euro yesterday on account of the latest comments from the Fed Chief indicating that the Fed is not averse to hike interest rates at an earlier than envisaged period. However, she maintained that the Fed would continue to support the economic recovery in order to keep it on track. Meanwhile, data released indicated that US industrial production grew at a slower pace for June, although the sector continues to show a modest improvement. Meanwhile, the greenback is trading in a tight range against the majors this morning. With housing starts and building permits showing a sharp drop for May, today’s June figures will be closely monitored in order to gauge whether the housing sector in the US rebounded following the weakness witnessed in the previous month. Additionally, today’s Philadelphia region manufacturing activity will attract market attention, especially in the wake of this week’s upbeat New York Empire state manufacturing report. Furthermore, today’s jobless claims data and a speech from a US Fed official will keep market participants interested. Once again investors will look for developments in Eastern Europe after the US and the EU announced further sanctions on Russia.

Euro – European Markets

With a light domestic economic calendar yesterday, the Euro continued to trade under pressure against the US Dollar as the Fed Chief hinted that the probability of a sooner than expected rate hike remains on the cards, if the US labour market continues to show an improvement. Besides, concerns surrounding German growth prospects and the Euro zone’s financial system also prompted traders to shun the Euro. Meanwhile, Ewald Nowotny, an ECB official, opined that he is unsure whether the central bank would resort to asset purchases, thereby contrasting the ECB President’s view. Meanwhile, the common currency is trading on a firmer footing against its major counterparts in today’s trading session. Markets will keep a close watch on today’s final Euro zone inflation report which is likely to confirm the preliminary reading for June in the wake of mixed inflation readings from European nations earlier this month. Additionally, investors in the Euro-US Dollar pair will keep a close watch on today’s US housing reports for further direction.

Other Currencies – Highlights

The Australian Dollar is trading in a tight range against the US Dollar this morning amid mixed picture from a private survey on business conditions. Data indicated that business confidence weakened for the second consecutive quarter while business conditions in the nation improved marginally during the second quarter. The Australian Dollar dropped against the US Dollar earlier this week after the US Fed Chief hinted at a sooner than expected interest rate hike, if the US labour market conditions continue to improve. However, the Australian Dollar found support yesterday following upbeat Chinese economic growth data for the second quarter. With no major economic releases in Australia scheduled later this week, market participants will keep a tab on macro releases in the US which have the potential to alter investors’ sentiment in the upcoming trading sessions.