UK Employment Levels Continue to Improve

Just released, and very encouraging domestic economic data has further strengthened belief that the UK economic recovery is gaining traction, especially the labour market which continues to extend its recent positive performance, thereby suggesting that the domestic demand will remain robust. However, the focus now shifts to the monetary policy stance that the BoE might adopt going forward amid promising signs from the economy. In the Euro zone, most of the ECB officials reaffirmed the ECB Chief’s view that more stimulus measures would be warranted, if the economy fails to recover with the recent measures. Separately, the World Bank lowered its 2014 global growth forecast in the wake of continued Ukrainian crisis and unusually cold weather in the US.

Pound Sterling – UK Markets

The just out UK labour market report has lifted the Pound against its major peers in today’s trading session. The unemployment rate dropped more than expected, while the number of people seeking jobless benefits in the UK continued to fall at a steady pace for April. The encouraging numbers confirm that the UK labour market recovery remains intact and will draw fresh scrutiny from BoE policymakers over the amount of slack in the domestic labour market. Against the backdrop of recent hawkish comments from BoE policymakers, especially Martin Weale and Ian McCafferty, today’s speech from another central bank official, Ben Broadbent, will gain market attention for his views over a probable timing for an interest rate hike. Sterling edged higher against the Euro yesterday following dovish comments from ECB officials and encouraging UK industrial and manufacturing production data for April. Separately, a report by NIESR indicated that the UK economy expanded for three months ended May and surpassed the pre-recession levels of January 2008, thereby suggesting a healthy economic trend for the second quarter of 2014.

US Dollar – US Markets

The greenback advanced against its major counterparts yesterday amid rising expectations that the US central bank might hike its benchmark interest rate sooner than expected following the continued recovery in the US economy, especially after last week’s encouraging labour market report. Additionally, dovish comments from ECB policymakers lent further support to the US Dollar against the single currency. On the economic front, a report from the NFIB indicated that confidence among small business owners rose for the third straight month for May to hit the highest level since the financial crisis in the previous decade. Separately, the World Bank lowered its US economic growth outlook for this year to 2.1% from its previous estimate of a 2.8% growth, accounting for growth affected by unfavourable weather conditions in the nation at the start of this year. The greenback edged lower against the Pound in today’s trading session following encouraging UK labour market report. With little on the domestic macro front today, market participants will keep a tab on the US monthly budget statement which is likely to show a deficit for May.

Euro – European Markets

Dovish comments from ECB officials dragged the single currency lower against most of the majors in yesterday’s trading session. The Euro slid below the 1.36 mark against the US Dollar and is currently hovering close to its lowest level since February 2014. Most of the ECB policymakers stressed that the central bank could do more, if last week’s package of monetary policy reforms are not sufficient enough to accelerate inflation in the Euro bloc. Last week, the ECB launched extraordinary easing measures to bolster the uneven Euro zone economic growth and slashed its deposit rate into negative territory for the first time in its history. Against this backdrop, speeches from some more ECB officials later today will gain market interest for their views on the central bank’s policy decision announced last week. The recent monetary policy decision appears to have significantly altered market dynamics, as market participants were seen dumping the single currency in the quest for higher yields. With the Spanish 10 year bond yield trading lower than a similar tenure US sovereign debt instrument, the dramatic changes witnessed in the fixed income market could possibly weigh on the Euro going forward.

Other Currencies – Highlights

The Aussie Dollar ticked higher against the US Dollar this morning following upbeat domestic consumer confidence data and the recent run of positive Chinese economic data. The Westpac consumer confidence in Australia rebounded for June following a sharp drop posted last month. Moreover, a slew of recent encouraging reports from China indicated that the world’s second largest economy is recovering from the recent setbacks. Meanwhile, the National Australia Bank’s business confidence and conditions reports diverged further, with confidence remaining steady while conditions deteriorating for May. With no major decisive triggers in Australia today, markets will keep a close watch on tomorrow’s consumer price inflation expectations and labour market reports for further direction. Markets expect the unemployment rate to slightly tick higher for May. Additionally, retail sales and Reuters/Michigan consumer sentiment reports in the US scheduled this week will provide direction to the Aussie Dollar against the greenback in the upcoming trading sessions.