UK Retail Sales Rebound Disappointing

The British Pound came under pressure yesterday, as the BoE minutes offered no clarity over the future course of interest rates in the UK, thereby heightening uncertainty over the future monetary policy stance. Meanwhile, data just released indicated that on a monthly basis, retail sales in the UK rebounded less than expected for June from a decline witnessed in the previous month. Concerns surrounding Euro zone growth prospects must have temporarily dissipated after today’s PMI figures showed an improvement in the region’s manufacturing sector. Across the Atlantic, the IMF slashed its 2014 growth forecast on the US, citing significant contraction witnessed during the first quarter. However, today’s manufacturing report is likely to highlight that growth remains on track going forward.

Pound Sterling – UK Markets

The Pound has moved marginally lower against the majors this morning after data just released indicated that retail sales in the UK grew less than expected for June. However, a rebound in monthly retail sales numbers suggest that recovery remains on track during the second quarter. Despite signs of a modest growth momentum in the British economy, BoE policymakers remained divided over the timeline for a probable hike in interest rates, as strikingly low wage growth continued to weigh on their minds, evident by yesterday’s BoE minutes. Furthermore, the minutes indicated that some MPC members believed that raising interest rates too early might derail the nation’s economy recovery. Additionally, the BoE Governor reiterated that the economy is gaining traction and future interest rate hikes would be in accordance with the incoming domestic economic data. Yesterday, Sterling dropped against the US Dollar as the BoE minutes revealed a less hawkish tone than market expectations. Meanwhile, data indicated that BBA mortgage approvals rose to a three-month high for June, following a four consecutive month of decline.

US Dollar – US Markets

The US Dollar is trading lower against the Euro this morning following mostly encouraging manufacturing and services PMI reports from European economies. Similarly, an upside in today’s US Markit manufacturing data cannot be ruled out, especially considering a healthy pace of recovery observed in the regional manufacturing activity reports released recently. Against the backdrop of comments from the US Fed Chief indicating that a probable hike in interest rates is dependent on conditions prevalent in the labour market, today’s weekly jobless claims figures will provide further food for thought to US policymakers. Furthermore, today’s new home sales data will keep investors interested. The greenback nudged higher against the Pound yesterday after the BoE minutes failed to reveal a timeline for future interest rate hikes. Additionally, the US Dollar remained supported following encouraging domestic inflation and housing market data released earlier this week, although signs of easing geopolitical concerns limited the upside. Meanwhile, the IMF cut its 2014 US economic forecast, mainly due to a sharp weather related contraction witnessed during the first quarter.

Euro – European Markets

The single currency is trading on a firmer footing against the US Dollar and the Pound this morning after data released earlier today indicated that German manufacturing activity expanded for July, while the nation’s services sector advanced at its fastest pace in three years, thereby indicating that the region’s largest economy is recovering from a slowdown witnessed during the second quarter. Additionally, Euro zone manufacturing and services PMIs charted a similar pattern, however, the French economy witnessed a faster than expected contraction in manufacturing activity for July. Later in the session, markets will keep a close watch on today’s string of economic releases in the US, given its potential to alter investors’ risk sentiment in the upcoming trading session. Meanwhile, the Euro remained in a tight range against the US Dollar yesterday. However, data released yesterday indicated that Euro zone consumer confidence deteriorated unexpectedly for July, mainly due to the ongoing unrest between Ukraine and Russia, thus adding to signs that recovery in the Euro bloc continues to remain uneven and fragile.

Other Currencies – Highlights

The Kiwi Dollar fell sharply against the greenback and hit a six-week low after the Reserve Bank of New Zealand Governor, Graeme Wheeler, indicated that the domestic currency's strength was “unjustified”, triggering speculation that the high value of the New Zealand Dollar might trigger an intervention by the central bank. He further warned that the Kiwi Dollar could have “a significant fall”. Meanwhile, the RBNZ hiked its official cash rate to 3.5% from 3.25%, in line with market expectations, a move to cool consumer price inflation in an expanding economy. Additionally, data showed that trade surplus in New Zealand narrowed for June, as falling dairy exports and high value of the Kiwi Dollar weighed on the nation’s trade numbers. Meanwhile, today’s upbeat manufacturing data in China failed to provide a fillip to the Kiwi Dollar against the majors. With no other domestic economic data scheduled this week, markets will eye US manufacturing and durable goods orders data to gauge the pace of recovery in the world’s largest economy.