UK Mortgage Approvals Continue to Drop

Data just released has indicated that mortgage approvals in the UK continued to drop for May, reflecting tighter lending measures implemented by the BoE in April. Meanwhile, the BoE Governor has indicated that interest rates are likely to increase to around 2.5% over the next three years, with the first rise likely this year. Across the Europe, better inflation numbers from Germany last week has set focus on today’s inflation reading from other European countries to gauge whether the policy measures adopted by the ECB earlier this month has helped to combat deflationary fears in the region. In the US, today’s pending home sales data will further cement hopes that the housing market is regaining its footing, especially in the wake of last week’s upbeat new and existing home sales reports.

Pound Sterling – UK Markets

The Pound is trading in a tight range, albeit on a weaker footing against its major peers this morning. Data just out indicated that mortgage approvals in the UK declined to a 10-month low for May after the BoE introduced tough lending rules in April to control the nation’s overheating housing market. The central bank also announced a new set of measures to curb house prices last week which might have an impact on mortgage approvals data going forward. Meanwhile, the outgoing BoE Deputy Governor, Charlie Bean, over the weekend stated that the central bank’s interest rate is unlikely to rise higher than 2.5% to 3% over the next few years. Data released on Friday confirmed that the domestic economy continued to expand during the first quarter, although the figures were revised downwards from the previous reading. The Pound dropped against the single currency in Friday’s trading session after a report indicated that German inflation rose as expected for June, thereby providing some relief to the ECB. Against this backdrop, today’s inflation figures from Euro zone will attract increased market attention.

US Dollar – US Markets

Dismal US economic growth and consumer spending numbers released last week continued to add uncertainty over the pace of recovery in the nation during the second quarter. The greenback remained under pressure against the majors on Friday, as these weak economic reports dampened speculation that the Fed might raise interest rates sooner than anticipated. However, data released on Friday confirmed that the Reuters/Michigan consumer sentiment index advanced for June on the back of improving job opportunities and rising house prices. Meanwhile, the US Dollar is trading in a tight range against the common currency this morning. Against the backdrop of last week’s upbeat new and existing home sales data, today’s pending home sales report will be keenly eyed which is expected show a similar trend for May, thereby suggesting that the domestic housing market is overcoming the weakness seen earlier this year. Additionally, Chicago and Dallas region manufacturing activity data will be keenly eyed as it is expected to have a bearing on tomorrow’s official ISM manufacturing report for June.

Euro – European Markets

Data released earlier today indicated that on a monthly basis, German retail sales unexpectedly declined for May. However, the common currency is trading in a tight range against its major counterparts this morning, as investors’ continued to remain on the sidelines ahead of today’s Euro zone consumer price inflation data. Additionally, market participants will keep a close watch on this week’s ECB monetary policy meeting, although the central bank is unlikely to alter its current stance as it awaits the impact of the extraordinary policy measures announced in its June meeting. The single currency advanced against the US Dollar in Friday’s trading session after data indicated that German inflation ticked higher for June on the back of higher energy prices, thereby alleviating pressure on the ECB to act again to avert the threat of deflation. Meanwhile, the ECB official, Yves Mersch, stated that the region’s weak consumer and business morale, as evidenced from Friday’s numbers, was mainly due to consumers delaying their purchases amid expectations of a further decline in prices.

Other Currencies – Highlights

The New Zealand Dollar dropped against the US Dollar this morning following weak ANZ Bank business confidence and the activity outlook for June. The deterioration in the business confidence and future outlook were attributed to various factors, especially rising benchmark interest rate, low export prices for dairy and forestry products and a cooling housing market. Furthermore, a report released over the weekend revealed that housing permits in the nation dropped for May, with a decline in apartment numbers offsetting a rise in housing consents. The recent weak numbers have subsided fears that the central bank might intervene in order to avoid further strengthening of the domestic currency. On Friday, the Kiwi Dollar advanced against the greenback amid concerns that interest rates in the world's largest economy might stay low for an extended period. With no major economic releases in New Zealand during the week, investors will keep a close tab on US macro data which has the potential to alter sentiment towards the New Zealand Dollar going forward.