UK Economy Continues to Expand

Yesterday, the IMF hiked its 2014 economic growth forecast on the UK for the fourth time in nine months and today’s official GDP data has further validated the IMF’s encouraging assessment. Data showed that the UK economy grew 0.8% sequentially for the second quarter, in line with market expectations, resulting in a subdued reaction in the Pound against the majors. With a surprise drop in US weekly jobless claims yesterday, investors have now turned their focus onto today’s durable goods orders data for hints on the overall health of the economy. Meanwhile, today’s Ifo sentiment survey does not reflect similar optimism about the German economy that was evident in yesterday’s PMI figures.

Pound Sterling – UK Markets

The just out UK GDP report for the second quarter is in sync with yesterday’s upbeat assessment of the UK economy by the IMF, thereby indicating that the nation’s recovery remains on track. As GDP numbers were broadly in line with market expectations, the Pound failed to gain further traction against the majors this morning. The IMF hiked its 2014 GDP forecast on the UK to 3.2% from 2.9% previously estimated. Going forward today, investors will keep a tab on US durable goods orders data which is likely to show a rebound for June, highlighting a steady recovery in the US economy during the second quarter. Next week, markets will get initial insights into the third quarter, with the release of UK manufacturing activity report and consumer confidence data. Additionally, investors in the Pound-US Dollar pair have their plates full in terms of macro data from the US. Yesterday, the Pound dropped against the greenback following disappointing UK retail sales and upbeat US jobless claims report. However, losses were limited following dismal US housing and manufacturing sector reports.

US Dollar – US Markets

Yesterday’s US economic data showed that initial jobless claims for last week fell to an eight year low. With recent comments from the Fed Chief highlighting that continuing improvement in the job market could lead to a sooner than expected hike in interest rates, the encouraging jobless claims report could possibly be the signal that US policymakers were waiting for. The greenback remained supported against its peers following the release of jobless claims figures and shrugged off manufacturing PMI and new home sales figures, which were disappointing, to say the least. Markets will eye US durable goods orders data due later today which is likely to aid in assessing the performance of the economy during the second quarter. With no other important macro data scheduled today, traders will shift their focus onto the next week’s US GDP figures for the second quarter to gauge the strength of a potential rebound in the US economy following the weather induced slowdown for the first quarter.

Euro – European Markets

The Euro dropped against the majors this morning following dismal German Ifo sentiment reports. In contrast with yesterday’s upbeat German manufacturing and services PMI readings, today’s German Ifo data revealed that business sentiment in the nation deteriorated more than expected for July, thereby making evident that economic recovery continues to remain uneven. However, the region’s largest economy overall looks to recover modestly going forward, as marked by data released earlier today which indicated that GfK consumer morale in Germany rose near to its highest level in more than seven and a half year for August despite rising geopolitical tensions in Ukraine and the Middle East. Against this backdrop, markets have now turned their attention to next week’s inflation reading from most of the European economies to gauge whether the recent easy policy measures have helped inflation to tick higher in the Euro bloc. Yesterday, the Euro edged higher against the majors following upbeat Euro zone and German PMI reports. However, a surprise drop in US weekly jobless claims led the Euro to retreat from its highs against the US Dollar in yesterday’s trading session.

Other Currencies – Highlights

The Japanese Yen lost ground against the greenback yesterday following upbeat US initial jobless claims for the previous week which showed that new applicants for jobless claims fell to an eight year low. However, an overnight economic release showed that consumer price inflation in Japan remained mostly in line with market estimates for June, capping losses in the Japanese Yen. Although the nation’s inflation remained firm, it showed a slight easing trend compared to the previous month due to subdued household spending. Against this backdrop, markets will keep an eye on Japanese household spending data for June scheduled next week to gauge whether the post-tax hike stimulus measures of the Bank of Japan has brought any improvement in the nation’s spending pattern. Additionally, a raft of other important domestic economic releases due next week will keep investors on their toes. With no other domestic macro data scheduled today, US durable goods orders report will provide further direction to the Japanese Yen against the majors.