US GDP Data and FOMC Meeting in Focus

Most of the economic reports in the US are suggesting a rebound in economic growth during the second quarter after an unusually weak first quarter. While most of the sectors have performed well, the recovery in the domestic housing market has been tepid. Against this backdrop, the US Fed is most likely to retain its current assessment and guidance in the FOMC meeting later today. The GfK consumer confidence data in the UK scheduled overnight is expected to show an improvement, thereby adding to signs that the domestic economy continues to recover at steady pace. In the Euro zone, investors will keep a close watch on today’s German inflation numbers, especially considering the persistent deflation threat in the region.

Pound Sterling – UK Markets

Lingering geopolitical tensions in Eastern Europe and bloodshed in the Gaza strip weighed on market sentiment, leading the Pound to trade lower against the US Dollar yesterday. Additionally, upbeat US consumer confidence report supported gains in the US Dollar. The domestic report revealing a more than expected rise in official mortgage approvals failed to provide a fillip to the Pound-US Dollar pair. Meanwhile, the BoE Deputy Governor, Ben Broadbent, indicated that a pickup in the global economy is required if the UK economy needs to enjoy its current sustainability. Going forward, it remains to be seen if the British economy is able to maintain the pace of expansion that it witnessed in the past few quarters, especially after the IMF lowered its 2014 global economic growth outlook last week. The Pound is trading in a tight range against most of the majors this morning. Markets will get the first glimpse of economic performance during the third quarter with the overnight release of the GfK consumer confidence report which is likely to show an improvement for July. Also, markets will track today’s crucial US macro data for further direction.

US Dollar – US Markets

Two important events of this week will take centre stage today, starting with US GDP data followed by the outcome of a two-day FOMC policy meeting. Market participants will keep a tab on US economic growth data which is widely expected to show a rebound during the second quarter, helped by continuing improvement in most of the economic activity. Additionally, the outcome of the Fed’s monetary policy meeting will be keenly scrutinised for any hints on the probable timing of interest rate hikes, with the Fed widely expected to continue tapering its monthly asset purchases. Furthermore, today’s ADP employment numbers will be eyed ahead of this week’s official labour market report. In the wake of continued improvement in the US labour market and considering the recent comments from the Fed Chief, a change in policymakers view following the jobs data cannot be ruled out. The US Dollar rose against the majors yesterday amid higher demand for safe haven bets due to persistent geopolitical tensions. On the US macro front, data indicated that consumer confidence in the nation rose unexpectedly for July, hitting its highest level since October 2007.

Euro – European Markets

Signs of fragile recovery in the Euro zone had already kept risk appetite among investors dampened and yesterday’s another round of tough sanctions by European leaders against Russia further weighed on the Euro. With new sanctions imposed on Europe’s largest trading partner and prospects of deflation still hovering over the currency bloc, further easing measures from the ECB in the near future cannot be ruled out. The Euro is trading in a tight range against the majors and is flirting around the 1.34 mark against the greenback this morning as investors remained on the edge ahead of some crucial economic data in Euro zone and the US. Investors expect today’s German preliminary consumer price inflation to show a further easing trend for July. However, the Bundesbank Chief indicated that wage earnings are increasing in some sectors and labour unions are getting above average pay hikes which could boost German inflation in the coming months. Additionally, the Euro zone consumer and business confidence reports for July are likely to show deterioration in sentiment amid persistent geopolitical tensions in Eastern Europe.

Other Currencies – Highlights

The Swiss Franc continued to trade under pressure against the greenback this morning amid speculation that the flash US GDP estimate due later today might show a sharp rebound for the second quarter. The domestic economic data released earlier today has been mixed and the Swiss Franc has shown little reaction against the majors. Data indicated a pick-up in the Swiss private consumption for June after business activity in retail and tourism sectors reported another month of positive developments. However, the KOF leading indicator dropped unexpectedly for July, suggesting that economic activity in Switzerland could take a hit going forward as economic recovery prospects in Euro zone remains fragile. With no other domestic macro releases scheduled this week, the Swiss Franc is expected to take direction from crucial economic events in the US, especially today’s FOMC meeting and GDP numbers. Additionally, the official US labour market report due on Friday will prove crucial for the Swiss Franc, especially after the US Fed Chief, Janet Yellen, earlier quoted that another round of upbeat jobs data could make the Fed consider a sooner than expected hike in the key interest rate.