Focus Shifts Across the Atlantic

Mario Draghi has reiterated that the European central bank might contemplate the use of large scale asset purchases in future, while indicating that interest rates might remain low until the end of 2016. Today’s soft PMI data from the Euro zone highlights that the region’s economy remains susceptible to shocks and further monetary easing measures might be warranted to support growth in the common currency union. With the US housing market showing signs of fatigue, this week’s housing sector report will hold significance. In the UK, with no major economic releases scheduled for the week, the BoE Financial Stability report due later this week could possibly unveil measures aimed at cooling the housing Market.

Pound Sterling – UK Markets

With no major macroeconomic releases in the UK and US on Friday, Sterling reversed its previous session gains and dropped against the US Dollar. Data released earlier indicated that the central bank borrowed less than expected for May. Meanwhile, BoE policy maker, Andy Haldane indicated that the Central Bank is under no immediate pressure to hike interest rates, mainly due to soft wage and subdued inflation growth, contrary his own views earlier last week when he favoured raising interest rates earlier rather than later. Meanwhile, Sterling continues to trade above 1.70 mark against the US Dollar in today’s trading session. However, the Pound-US Dollar will chart movement in accordance with the macroeconomic releases in the US, especially housing market report later today to gauge the health of the US housing market. With a lack of domestic decisive triggers, most of the market attention will remain focused on this week's Financial Stability report followed by the press conference by the BoE Governor, Mark Carney, wherein it is widely expected the central bank will announce some form of practical policy measures to ease house price pressures.

US Dollar – US Markets

The US Dollar is trading higher against the Euro this morning, following the soft PMI releases from Europe. With largely upbeat US economic reports of late, today’s Markit manufacturing PMI report is likely to chart a similar trend, thereby suggesting that the US economy is on track for a steady recovery during the second quarter. However, this week’s housing sector reports, including today’s existing home sales numbers are likely to shed fresh light on the state of the housing market, as the sector appears to lag the rest of the economy. Meanwhile, data released earlier today revealed that HSBC Chinese manufacturing activity expanded at a faster than expected pace near its seven months high, on the back of increase in new orders, thereby keeping the greenback under pressure. Going forward, market participants will keep a close watch on the comments from Fed officials during the course of the week for further hints over the central bank’s plans for the future. With no major decisive triggers in the US on Friday, the greenback recovered some of its previous session losses and advanced against its major peers.

Euro – European Markets

Data released earlier today indicated that manufacturing and services activity across Europe remained subdued for June. French manufacturing PMI slid to a six month low, while the services PMI declined unexpectedly for the current month. Meanwhile, German’s services PMI dropped more than expected, while the manufacturing PMI climbed marginally for June. In the advent of the weak PMI releases, the Euro is trading on a weaker footing against the greenback and the Pound this morning. Today’s economic releases highlight that the Euro zone economy is still not out of the woods, despite the ECB unveiling unprecedented set of monetary policy measures in this month’s meeting. Tomorrow’s IFO survey is likely to shed light on the impact of ECB’s monetary policy measures on the German business climate. In an interview over the weekend, the ECB President, Mario Draghi indicated that the central bank is willing to consider large scale asset purchases but for now will continue with existing stimulus measures. Additionally, he opined that the interest rates would probably remain low for at least till the end of 2016.

Other Currencies – Highlights

Upbeat inflation and retail sales reports lifted the Canadian Dollar against the greenback on Friday. On an annual basis, the consumer price inflation climbed at a fastest pace, above the central bank's target for the first time in two years for May, boosted by higher prices for meat, traveller accommodation and electricity, thereby sparking speculation that the central bank might soon hike interest rates. Furthermore, Canadian retail sales grew more than expected for April, as demand for new cars rebounded. Meanwhile, with no major macroeconomic releases in Canada, the Canadian Dollar continued to trade on a firmer footing against the greenback in today’s trading session. Going forward, a slew of economic releases in the US, especially US housing market reports have potential to alter market sentiment towards the Canadian Dollar.