UK Public Sector Borrowings Drop

With a heavy US macro calendar today, investors will turn away from the geopolitical worries surrounding Eastern Europe amid signs of easing tension, after pro-Russian rebels handed over the black boxes of the crashed jet to Malaysian officials. However, Sterling investors prefer to remain on the sidelines ahead of tomorrow’s BoE minutes, which may provide further cues over the probable time-line for an interest rate hike. Meanwhile, today’s data has shown that UK public sector borrowings dropped for June, although less than expected. Across the Atlantic, today’s data is likely to show that inflation continues to remain near the Fed’s 2% target for June. Additionally, housing market data will be in focus, especially considering the recent soft batch of housing reports.

Pound Sterling – UK Markets

The Pound continues to trade in a tight range against the US Dollar this morning. Data just out has shown that the UK government continued to borrow for June, albeit at a slower pace. With no major economic releases in the UK, market participants will keep a close watch on today’s US inflation data, along with housing and regional manufacturing sector reports, for further cues to risk appetite. Going forward, investors in the Pound-US Dollar pair will keep a close watch on tomorrow’s BoE minutes to gauge policymakers’ view over the amount of slack in the nation and probable hints on future rate hikes. Furthermore, markets will keep a tab on the nation’s preliminary GDP numbers for the second quarter scheduled later in the week to verify whether economic growth remained consistent, as indicated by the recent NIESR survey. Meanwhile, Sterling remained under pressure against the greenback in a risk off trading session yesterday following higher demand for safe haven assets, as escalating geopolitical tensions continued to weigh on market sentiment.

US Dollar – US Markets

Today, investors have their plates full in terms of macro data in the US in order to turn their attention away from continuing geopolitical concerns. The US inflation report will attract considerable market attention, especially after the US Fed Chief recently dismissed the accelerating inflation trend and indicated that the numbers were “noisy”, although the figures are likely to remain unchanged at the previous month’s level for June. Against the backdrop of an encouraging regional manufacturing activity report last week, today’s Richmond region manufacturing data is likely to follow a similar trend, thus adding to signs that the US economic revival remains on track. Furthermore, with lingering concerns in the housing sector, today’s existing home sales data will be keenly eyed. The US Dollar remained supported against the majors yesterday, as investors continued to take shelter in safe haven currencies amid ongoing worries in Eastern Europe and the Middle East. However, gains were capped following a weak Chicago region economic activity report for June, thereby reviving speculation that economic growth might not rebound as previously expected during the second quarter.

Euro – European Markets

The Euro edged lower against the greenback in a risk averse trading session yesterday as continuing tensions in Ukraine and the Middle East weighed on investors’ sentiment. However, losses were limited following a weak US Chicago manufacturing activity report. Furthermore, the Bundesbank, in its monthly report for July stated that the nation’s economic growth probably slowed during the second quarter as increasing geopolitical concerns abroad weighed on the nation’s industrial output. On the contrary, the IMF hiked 2014 economic growth outlook for Germany to 1.9% from 1.7% estimated earlier. With no major domestic economic triggers today, the Euro is trading in a tight range against most majors this morning. Tensions in Ukraine have shown some signs of easing after pro-Russian rebels offered the black box of the crashed Malaysian plane to international investigators. Going forward, markets will keep a close watch on the US inflation report in order to gauge inflationary pressure in the world’s largest economy. Additionally, existing home sales report along with Richmond region manufacturing data will keep investors on their toes.

Other Currencies – Highlights

The Swiss Franc dropped against the greenback in today’s trading session after data indicated that domestic trade surplus narrowed more than expected for June, as rising imports outstripped an increase in exports. However, losses in the Swiss Franc were limited, as it was supported by the demand for safe haven assets due to geopolitical tensions across various parts of the world. With no major domestic economic releases, markets will keep a close watch on today’s slew of economic releases in the US, especially the US inflation report, for further direction. In the absence of major macro data in Switzerland during the course of the week, investors will continue to assess economic data from the US along with events unfolding in Ukraine and the Middle East for further direction to the Swiss Franc against the majors.