UK Services PMI Drops Less Than Expected

Yesterday’s Euro zone inflation numbers has sealed hopes of the ECB abandoning its “wait and watch” approach that was part of its strategy since November 2013. However, uncertainty looms over the tools that the ECB might opt to tackle the region’s economic woes. In contrast, the BoE faces no immediate challenges on the economic front. But, with recent PMI readings registering a marginal drop for May, a possible slowdown in the pace of economic expansion cannot be ruled out. Data just out has also shown that services PMI dropped for May, although it was less than market expectations. In the US, today’s ADP employment report will be closely monitored as any surprises on this front will possibly intensify volatility in markets.

Pound Sterling – UK Markets

With manufacturing and construction PMI showing an easing trend earlier this week, today’s just released data has indicated that services activity in Britain slowed, although less than expected, thereby providing some relief to Sterling against both the US Dollar and the Euro this morning. Although the manufacturing, construction and services PMI continues to remain in the expansion phase, a marginal deterioration in these numbers might limit further acceleration in UK’s economic growth during the second quarter of 2014. Meanwhile, a slew of crucial macro reports in the US during this week will keep investors in the Pound-US Dollar pair interested. However, much of Sterling investors interest remains focused on tomorrow’s BoE policy meeting at which the central bank is likely to keep its monetary policy stance unchanged. In yesterday’s trading session, Sterling remained broadly under pressure against US Dollar after data indicated that construction activity unexpectedly fell to a seven month low for May, but continued to remain above the crucial 50 mark.

US Dollar – US Markets

With equity markets in the US still perched close to multi-year highs, the latest trends from currency markets seem to suggest that traders have taken cognizance of fresh signs of improvement in the US economy, as evidenced from yesterday’s upbeat factory orders data. The US Dollar registered a steady decline against the Euro, amid increased risk appetite among traders. However, with important set of triggers lined up for the latter half of this week, there remains plenty of room for surprises during the upcoming trading sessions. Meanwhile, the US Dollar is trading marginally higher against the Euro in today’s trading session. It remains to be seen if today’s ADP employment figures prompt investors to revise their bets ahead of the scheduled release of the official labour market data on Friday. Among other key economic releases today, the ISM services report will be watched closely to gauge if services activity replicated the strength witnessed in the overall manufacturing sector. Although there is no ambiguity over the Fed’s near-term monetary policy stance, today’s Beige Book survey is likely to receive attention as it will shed light on the broader assessment of the central bank with respect to the US economy.

Euro – European Markets

Influential policymakers from the ECB have time and again indicated that lower prices pose significant threat to the region’s economic prospects and yesterday’s soft CPI reading has only offered fresh evidence that the ECB might be pushed to act in order to avert an impending trouble. With currency markets bracing for fresh accommodative measures by the ECB, there still remains limited clarity over the measures that the ECB Chief and his colleagues would adopt in tomorrow’s policy meeting. Interestingly, the single currency showed resistance ahead of tomorrow’s crucial policy meeting, as the Euro limited further losses against the US Dollar in today’s session. Additionally, yesterday’s positive unemployment data appears to have offered some encouragement to the Euro. Although today’s GDP figures are likely to confirm an improvement in the Euro zone economic growth for the first quarter, the recent downbeat PMI data from peripheral and core Euro zone nations offer evidence that a reversal in this trend cannot be ruled out going forward. Apart from the policy meeting, important US economic releases will have a bearing on markets during the upcoming trading sessions.

Other Currencies – Highlights

Data released earlier today indicated that Australian economy expanded at a faster than expected pace during the first quarter 2014, helped by extraordinary performance by the nation’s mining industry. However, the Aussie Dollar showed little reaction and is trading in a tight range against the US Dollar this morning. The RBA, in its policy meeting yesterday, maintained its benchmark interest rate at 2.5% and stated that the monetary policy might continue to remain accommodative in order to support demand and growth in the economy. With no major decisive domestic triggers today, markets will keep a tab on a slew of macroeconomic reports in the US for further direction to risk appetite. Moreover, investors will keep a close watch on tomorrow’s domestic trade balance data which is expected to show a significant decline in surplus for April.