UK Construction PMI Declines

The just out data indicated that construction activity in the UK unexpectedly declined for May, thus shifting market focus to tomorrow’s all-important services PMI report. Yesterday’s data revealed that mortgage approvals dropped to a nine month low for April as rising house prices and tight lending rules held consumers from making new purchases. However, fears of a housing market bubble persists as a Nationwide report earlier today revealed that house prices continued to rise for May. Today’s Euro zone inflation and unemployment data is likely to validate that the ECB might have to unveil fresh accommodative measures to combat deflationary pressures in the region. In the US, factory orders data will generate market attention following yesterday’s encouraging ISM manufacturing data.

Pound Sterling – UK Markets

In a volatile trading session yesterday, Sterling remained in a tight range against the US Dollar and gained marginally against the Euro following weak German inflation numbers. Although manufacturing activity in the UK slowed as expected for May, it remained in the expansion phase for the 15th consecutive month, indicating that recovery remained solid during the second quarter. However, mortgage approvals dropped to the lowest in nine months for April due to tight lending rules by the BoE and firmer house prices. Meanwhile, the rising house price trend was confirmed earlier today after data from Nationwide indicated that on an annual basis, house prices in the nation rose at the fastest pace in nearly seven years for May. The just out domestic construction PMI report indicated that activity in the nation expanded at a slower pace for May, thereby shifting market focus to tomorrow’s services PMI report which is also expected to reveal a marginal drop for May. However, the Pound has shown little reaction and is range bound against the greenback this morning as market participants preferred to remain on the sidelines ahead of the BoE monetary policy meeting later this week.

US Dollar – US Markets

Rising expectations that the ECB might loosen its policy this week supported the greenback against the single currency in yesterday’s trading session. Separately, a lot of volatility was witnessed in the currency markets due to the confusion created by the initial manufacturing figures released by the ISM. Later, the rectified figure revealed that manufacturing activity accelerated at an expected pace for May, thereby pointing that the US economy continues to recover during the second quarter. Separately, the US Fed Official, Charles Evans, indicated that the US inflation is expected to remain low for some more time but reinforced the widely held belief that the central bank might complete its tapering programme by the end of this year. Meanwhile, the US Dollar is trading in a tight range against its major peers in today’s trading session. Market participants will keep a tab on today’s factory orders data which is likely to show a slower pace of growth for April. Additionally, today’s Euro zone inflation and unemployment numbers will keep investors in the Euro-US Dollar pair interested.

Euro – European Markets

The single currency was under pressure against its major peers in yesterday’s trading session following weak inflation and manufacturing PMI numbers in Europe. Manufacturing activity slowed in most Euro zone economies last month, thereby indicating that recovery in the currency bloc remains fragile and uneven. Last week, data indicated that inflation slowed in Italy and Spain while yesterday’s German inflation report revealed that inflation in the Euro area’s largest economy dropped below the 1% mark for the first time in four years. Against this backdrop, today’s Euro zone inflation report will be eyed which is expected to remain unchanged for May. With the overall economic climate showing no considerable improvement from the last quarter of 2013, broader market consensus seems to suggest that the ECB might adopt unconventional stimulus measures in its monetary policy meeting due later this week. In a cautious trading session ahead of the ECB monetary policy meeting on Thursday, the Euro is trading in a tight range against the majors this morning. Going forward, apart from Euro zone inflation report, today’s Euro area unemployment data will generate market attention.

Other Currencies – Highlights

With no major domestic economic releases, the New Zealand Dollar is trading on a firmer footing against the US Dollar this morning after data released earlier today indicated that China’s official non-manufacturing activity expanded for May. Additionally, the HSBC/Markit manufacturing PMI in China climbed for May, although less than expected. These encouraging numbers suggest that the world’s second largest economy continues to recover from the recent setbacks. However, the New Zealand Dollar dropped against the greenback yesterday after the ISM manufacturing activity in the US accelerated for May, indicating that the economy continues to recover at a steady pace. With a light domestic economic calendar this week, market participants will keep a close eye on today’s US factory orders report ahead of Friday’s crucial labour market figures for further direction to the Kiwi Dollar against the greenback.