A Crucial Week Ahead for the Pound

With a light global economic calendar today, markets will continue to keep a tab on events unfolding in Ukraine and the Middle East. On the domestic front, investors await this week’s minutes from the BoE’s latest policy meeting in order to assess the prospects of an interest rate hike in the UK. Besides, second quarter GDP and retail sales figures will also generate attention in order to decipher the future course of monetary policy in the UK. Across the Atlantic, today’s Chicago region manufacturing activity data is likely to show a decline for June, although the recent set of domestic macro data continues to point that the economy remains on a recovery path during the second quarter.

Pound Sterling – UK Markets

Data released overnight by Rightmove indicated that on a monthly basis, house prices in the nation dropped for the first time this year, in the latest sign that the overheating housing market is showing some signs of cooling. The brake on continuous rise in house prices was mainly due to a new series of stricter lending rules unveiled last month and expectations that a hike in interest rates might happen sooner than anticipated. However, the probable timeline for a rate hike, if any, might be evident when the central bank releases the minutes of its latest policy meeting later this week. Meanwhile, the Pound is range bound against the majors this morning. In the wake of encouraging NIESR GDP report for the second quarter released earlier this month, this week’s preliminary official growth numbers is also likely to chart a similar trend. In a subdued trading session on Friday, Sterling’s losses against the greenback were capped mainly due to disappointing US Reuters/Michigan consumer confidence report.

US Dollar – US Markets

The greenback remained in a tight range against the common currency in Friday’s trading session, as gains were limited following disappointing Reuters/Michigan consumer sentiment report for July. Data indicated that consumer confidence dropped unexpectedly for July, although it continued to remain near its highest level this year. However, the US Dollar remained supported by continued geopolitical concerns in Ukraine and the Middle East. The US Dollar is trading higher against the majors this morning. With a light economic calendar today, markets will keep a close watch on today’s Chicago region manufacturing activity report for June which is likely to confirm that the economy continues to recover at a steady pace. However, the latest housing market indicators seem to suggest that the sector continues to pose risks for the overall economic revival. Against this backdrop, investors will keep monitoring this week’s new and existing home sales data for further direction. Furthermore, tomorrow’s inflation reading will attract market attention in order to gauge if price pressures prompt the Fed to alter its monetary policy stance.

Euro – European Markets

The Euro recovered some of its early session losses against the US Dollar towards the end on Friday. However, gains remained capped as tensions in Ukraine and the Middle East continued to weigh on investors’ sentiment. Jens Weidmann, the Bundesbank President, stated that the ECB’s current loose monetary policy has done what it could do to maintain the Euro area’s price stability and warned against its long term risks on the region’s financial stability. He further stated that the central bank will not delay its decision to hike interest rates, whenever circumstances arise. Meanwhile, over the weekend, Wolfgang Schaeuble, the German Finance Minister, warned that the ECB’s loose monetary policy might propel asset bubble risks in the region. The Euro is trading in a tight range against the majors this morning. Data released earlier today indicated that German producer prices continued to decline, although at a slower pace for June. With no decisive domestic macro triggers today, investors will continue to monitor developments in Eastern Europe and will keep a close watch on this week’s economic releases across Europe for further direction.

Other Currencies – Highlights

The Canadian Dollar edged higher against the greenback on Friday after data indicated that the domestic consumer price inflation rose for June at the fastest pace since February 2012, mainly due to a surge in food and transportation costs. The data is likely to raise questions over the central bank’s view that the rising inflation in the nation is a temporary phenomenon. However, gains in the Canadian Dollar were limited amidst investors’ demand for safe haven assets amid geopolitical tensions in Ukraine and the Middle East. Meanwhile, the Canadian Dollar is trading on a weaker footing against the US Dollar this morning. Moving ahead this week, markets will keep a close watch on this week’s Canadian retail sales numbers which is likely to show a slower pace of growth for May. Additionally, a slew of economic releases in the US, especially inflation and housing market reports, will be keenly monitored, considering their potential to alter risk sentiment towards the Canadian Dollar going forward.