UK Consumer Confidence Deteriorates

The first glimpse of the upcoming data in the UK during the third quarter has disappointed markets after GfK consumer confidence dropped for the first time in six months for July. Nationwide housing data also surprised investors on the downside, leading the Pound to trade under pressure against the majors. Today’s encouraging German unemployment and retail sales data has not helped Sterling-Euro pair. Markets will look forward to today’s Euro zone inflation reading to see if it brings some respite for Sterling investors. Across the Atlantic, the Fed failed to offer a timeline for rate hikes but its view that the contraction in the first quarter was temporary seems to be correct, as yesterday’s second quarter GDP numbers showed a significant rebound.

Pound Sterling – UK Markets

The Pound is trading on a weaker footing against its major counterparts this morning. Data released overnight indicated that UK GfK consumer confidence dropped for the first time in six months after marking a 10-year high level in the previous month, thereby raising concerns that spending pattern in the British economy might suffer going forward. Additionally, in sync with the earlier surveys by RICS and Hometrack, today’s Nationwide data indicated that house prices in the UK rose less than expected for July, as tougher mortgage rules seemingly affected buyers. However, in an interview earlier today, the BoE Deputy Governor hinted towards the possibility for an earlier than expected hike in interest rates, while reiterating that the hike would be limited and gradual. Tomorrow’s UK manufacturing report is expected to shed further light on the prospects of an interest rate hike. In yesterday’s trading session, upbeat US GDP report pushed Sterling lower against the greenback and the pair briefly moved below the 1.69 mark. However, further losses were capped as the Fed failed to sketch an exact timeline for interest rate hikes.

US Dollar – US Markets

United States economic growth rebounded more than expected for the second quarter, confirming the Fed’s view that the contraction witnessed during the first quarter was a temporary phenomenon, pushing the US Dollar higher against the majors yesterday. However, gains in the US Dollar were limited as the Fed failed to outline an exact timeline for interest rate hikes. On expected lines, the Fed kept its interest rate unchanged at 0.25% and tapered its monthly asset purchases by another $10 billion. Additionally, it indicated that although nation’s inflation and labour market continues to improve, a significant slack in the labour market and sluggish housing sector recovery still remains a concern. Separately, the ADP labour market report was weak for July, thereby shifting market attention towards tomorrow’s official non-farm payrolls data for further direction. The US Dollar is trading in a tight range against the majors this morning. Going forward today, apart from US weekly jobless claims and Chicago region manufacturing activity data, markets will keep a close watch on Euro zone inflation figures for further direction to risk appetite.

Euro – European Markets

The Euro dropped against the US Dollar yesterday after data indicated that the US economy rebounded more than market expectations during the second quarter. Additionally, data indicated that Spanish consumer prices dropped more than expected while German inflation eased for July. The data might fuel debate among policymakers over the amount of time required to bolster prices in the currency bloc after the ECB’s unprecedented stimulus measures unveiled last month. Against this backdrop, markets will keep a close watch on today’s Euro zone inflation numbers for further direction to risk appetite. However, losses in the Euro were capped yesterday as the Fed failed to highlight a probable timing for future rate hikes in its policy meeting. Today, the Euro is trading in a tight range against its majors. Data released earlier today revealed that the number of unemployed people in Germany dropped more than expected for July, while the nation’s retail sales rebounded at a faster than anticipated pace for June after falling for three consecutive months. Today’s positive German economic data has boosted hopes for a modest revival in the nation.

Other Currencies – Highlights

The Australian Dollar lost ground against the greenback yesterday following the release of upbeat US GDP numbers for the second quarter. The domestic economic data released earlier today has been mixed and the Australian Dollar has shown little reaction against the majors. The Australian building approvals declined more than expected for June, indicating a slowdown in the construction sector which has been a major driver in balancing the nation’s economic recovery after the mining sector lost its charm. However, credit flow in the Australian business community and household rose more than expected for June, showing prospects of an improving domestic confidence and spending pattern. With little on the domestic macro front today, markets will eye tomorrow’s AIG manufacturing performance survey for July to ascertain if a higher flow of credit into the business community has improved the pace of activity in the industrial sector. Additionally, market participants will look forward to the US official labour market report due tomorrow for further direction to the Australian Dollar against the majors.