Sterling Trades in a Tight Range

The encouraging second quarter GDP figures from the UK released last week further highlights the marked all-round progress made by the economy. However, the Pound failed to register gains against its peers after the GDP numbers, as uncertainty over Britain’s monetary policy still looms. This week’s consumer confidence and manufacturing PMI numbers are likely prove vital in ascertaining whether the Pound can sustain above the 1.70 mark against the US Dollar in the near term. Across the Atlantic, non-farm payrolls and GDP numbers remain the highlight for the weekly trading session. In the Euro zone, investors will evaluate the impact of last month’s policy measures on the inflation readings scheduled from most of the European economies later this week.

Pound Sterling – UK Markets

The British economy expanded, as expected, during the second quarter, thereby supporting the IMF’s encouraging assessment of the UK economy for 2014. The positive GDP growth numbers have raised hopes that the BoE might be the first among developed countries to hike interest rates. However, disappointing wage growth and inflation numbers continue to weigh on the likelihood of an early hike in interest rates. Meanwhile, the GDP report failed to entice investors, resulting in a subdued reaction in the Pound against the majors on Friday. With no major economic releases in the UK today, Sterling is trading in a tight range against its major counterparts this morning. Apart from initial insights into the nation’s manufacturing activity and consumer confidence, this week seems to be light in terms of macro data in Britain. Investors will look forward to next week’s BoE policy meeting for further hints on the central bank’s future course of action. Additionally, this week’s string of crucial economic releases in the US along with the FOMC policy meeting will keep investors in the Pound-US Dollar pair on their toes.

US Dollar – US Markets

In the aftermath of the weak first quarter US GDP report which was hurt by harsh weather conditions, this week markets will get the first glimpse of the second quarter GDP data which might show a sharp rebound in the US economy. Although the Fed is likely to announce another round of tapering at this week’s policy meeting, it might be overshadowed by the official labour market report scheduled later this week, especially in the absence of post-meting conference by the Fed Chief. Markets will keenly evaluate the official labour market data to ascertain the pace of improvement in the jobs market, especially after recent comments from the Fed Chief highlighted that the timing of interest rate hikes is dependent on the prevalent condition in the domestic labour market. Going forward today, with mixed housing sector data released last week, today’s US pending home sales report will be closely tracked to gauge any signs of improvement in the sluggish housing market. Meanwhile, the US Dollar is range bound against its major counterparts this morning. Upbeat US durable goods orders and weak German Ifo business sentiment report pushed the US Dollar higher against the Euro on Friday.

Euro – European Markets

The Euro dropped against the US Dollar on Friday following weak German Ifo sentiment reports. Data indicated that German business morale deteriorated more than estimated to the lowest level since October 2013, as sluggish growth coincided with mounting tensions in Ukraine and the Middle East. A separate report revealed that durable goods orders in the US rebounded more than expected for June, thereby adding to signs that US economic revival remains on track. However, losses in the Euro were limited following an improvement in German GfK consumer confidence for August, in line with last week’s upbeat German manufacturing and services activity reports. With no decisive domestic triggers today, the single currency is trading in a tight range against most of its major peers this morning. Meanwhile, over the weekend, the ECB Vice President, Vitor Constancio, indicated that the aggressive monetary policy unveiled last month by the central bank would tackle the problem of low inflation in the currency bloc. Against this backdrop, this week’s inflation readings from most of the European economies will keep investors interested.

Other Currencies – Highlights

The Kiwi Dollar is trading on a weaker footing against the US Dollar this morning after New Zealand’s Prime Minister, John Key, agreed with the Reserve Bank of New Zealand’s view that the domestic currency is overvalued. Last week, the RBNZ raised its official cash rate to 3.5%, while signalling a pause to further tightening of its policy as it preferred to adopt a wait and watch approach. Meanwhile, market participants expect the world’s largest diary company, Fonterra Co-operative Group, to announce a cut to its milk price forecast tomorrow. This could have an impact on the nation’s trade and could result in volatility in the Kiwi Dollar against the majors. With a lack of economic releases in New Zealand today, markets will keep a close watch on US pending home sales data for further direction. Going forward this week, domestic building permits data along with a slew of economic releases in the US will be keenly monitored, especially considering its potential to alter risk sentiment towards the Kiwi Dollar in the upcoming trading sessions. This could have an impact on the nation’s trade and could result in volatility in the Kiwi Dollar against the majors.