UK Employment Data in Focus This Week

Following soft PMI releases in the UK , the labour market report and industrial output data will attract market attention for further clarity on Britain’s growth prospects for the second quarter. Markets expect these reports to offer further evidence of an improving economic landscape and is expected to keep Sterling supported during this week. Today’s weak Sentix investor confidence data in the Euro zone has further affirmed the need of policy measures undertaken by the ECB last week and has kept the Pound-Euro pair on a firmer footing. Across the Atlantic, Friday’s non-farm payrolls report indicated that the US labour market continues to recover for May. This buoyancy was also witnessed in China’s trade data released over the weekend.

Pound Sterling – UK Markets

Sterling’s reaction against the majors to soft trade balance figures was muted in Friday’s trading session. However, the Pound lost some ground against the greenback following the release of encouraging non-farm payrolls report in the US. Data showed that the trade deficit in the UK widened more than expected on the back of weak manufacturing exports for April. Against this backdrop mostly weak domestic economic reports recently, the BoE is unlikely to raise interest rates soon as the economy still needs support in the form of monetary stimulus. Meanwhile, a survey indicated that consumer inflation expectations in the UK for the next 12 months eased to the lowest level in more than four years, thereby supporting the need of accommodative measures adopted by the BoE. The Pound has suffered limited losses against its major counterparts this morning. With no decisive domestic triggers at home today, investors will prefer to remain on the sidelines ahead of this week’s UK employment report. The domestic industrial production data due tomorrow is also likely to be closely watched and is expected to show an improvement for April.

US Dollar – US Markets

The encouraging non-farm payrolls report and unemployment data failed to lift the US Dollar against its major counterparts in Friday’s trading session. Data showed that US employers added more than 200k workers for the fourth consecutive month while the unemployment rate remained unexpectedly unchanged for May, thereby indicating that the US labour market continues to make steady progress and recover from the slowdown witnessed in the first quarter. With recent domestic data indicating that the economy is on a steady path to recovery, the Fed is expected to persist with its QE tapering. However, comments from Fed policymakers, especially its Chief, Janet Yellen, suggests that the central bank is unlikely to hike interest rates anytime soon. Separately, S&P ratings agency reaffirmed its ‘AA+’ credit rating on the US. With no major macroeconomic releases in the US today, the greenback is trading in a tight range against its major peers today. Meanwhile, investors will keep a tab on speeches from some US Fed officials for further direction to risk appetite.

Euro – European Markets

With the much awaited ECB policy meeting delivering expected results last week, the Euro posted marginal gains against the US Dollar in today’s trading session, as the dramatic slide witnessed in the single currency during the previous month seemed to have already priced in the prospect of the ECB unveiling fresh stimulus in June. Separately, data just released showed that the Sentix Euro zone investor confidence index dropped unexpectedly for the current month. After a sharp reversal in Thursday’s trading session, the common currency continued to hover slightly above the 1.36 mark against the US Dollar on Friday. Among noteworthy economic releases on Friday, data showed that the trade surplus in Germany widened, with exports rebounding at a faster pace while monthly industrial production rose less than expected for April. Meanwhile, the Bundesbank believes that German economic growth is poised to accelerate in the coming period, after it hiked its economic growth forecast for 2014. Meanwhile, the ECB Vice President, Vitor Constancio, reiterated the ECB Chief’s views as he indicated that the central bank might introduce a broad asset purchase programme, if inflation expectations start falling.

Other Currencies – Highlights

The Japanese Yen is trading in a tight range against the greenback in today’s trading session despite data released over the weekend confirming that the Japanese economy grew at a faster than expected pace for the first quarter of 2014, as encouraging US labour market report released on Friday continued to boost demand for the greenback. Additionally, the Japanese consumer confidence rebounded for May, thereby indicating that the impact on consumer sentiment from April sales tax hike might have been short lived. Additionally, the nation posted a current account surplus for the third consecutive month for April on the back of slowing imports and strong investment income from overseas. With no major economic releases across the globe today, investors will keep a tab on the Bank of Japan’s interest rate decision due later this week for further direction to risk appetite. Also, US retail sales and Reuters/Michigan consumer sentiment reports have the potential to alter risk sentiment this week.