UK Services PMI Expands Further

The just out UK services PMI report has shown a better than expected improvement in activity for April, thereby reversing the gradual easing trend seen in the sector over the past few months. This is likely to keep Sterling supported in today’s session and could possibly inch closer towards the 1.70 mark against the US Dollar. In the absence of major domestic macro releases until the BoE policy meeting scheduled on Thursday, investors will closely track global economic data for further direction. Across the Atlantic, amid steady signs of economic recovery and particularly the labour market, speeches from several Fed policymakers this week will attract market attention. In Europe, recovery in Germany continues to remain uneven, as highlighted by today’s services PMI numbers.

Pound Sterling – UK Markets

Sterling is trading higher against the majors in today’s trading session after data just released indicated that services activity in the UK expanded more than expected for April. The Pound continues to hover close to its multi-year high against the US Dollar and it remains to be seen whether the prevalent stable environment in the British economy propels Sterling above the 1.70 mark against the US Dollar in the upcoming trading sessions. Going forward, though the BoE is unlikely to alter its current monetary stance, market participants will keenly eye the central bank’s policy meeting scheduled this week for any forward guidance on the monetary policy. Also, domestic industrial production report this week and tomorrow’s US Fed Chief, Janet Yellen’s speech have the potential to drive investors’ sentiment this week. The Pound was range bound against most of its major counterparts yesterday in a holiday thin trading session as markets in London remained closed on account of Early May Bank holiday. Data released on Friday indicated that the domestic construction sector activity expanded for the twelfth consecutive month for April, albeit at a slower pace due to sluggish civil engineering business growth.

US Dollar – US Markets

The US Dollar was range bound against most of its major counterparts yesterday, despite data indicating that US ISM non-manufacturing activity expanded at a faster pace for April, providing further signs that the US economy is rebounding. Late last week, data revealed that the pace of hiring by US employers rose more than expected in two years while the unemployment rate fell at a faster than anticipated pace to a five and a half year low of 6.3% for April. However, the US Dollar failed to sustain gains after the upbeat labour market report, as market participants remained sceptical about the state of affairs in the US economy and are likely to remain watchful about incoming economic data for further insights. Meanwhile, the greenback is trading on a weaker footing against the Euro this morning. Going forward, today’s trade balance report is likely to attract some attention. With a light macroeconomic calendar this week in the US, investors will keep a close watch on speeches from few US Fed policymakers, especially the Fed Chief’s speech, for further direction.

Euro – European Markets

The Euro strengthened against the US Dollar this morning after data released earlier today confirmed that services activity in the Euro zone expanded at a faster pace in most of the region’s peripheral economies, except for Germany where services activity improved less than expected for April. Investors will keep a tab on today’s Euro zone retail sales for further direction which is likely to show a monthly decline in March. However, most of market attention is focused on this week’s ECB monetary policy decision. Although market participants expect no change in the policy stance, Mario Draghi’s post meeting press conference has the potential to heighten volatility in the Euro-US Dollar pair. Data released yesterday indicated that Sentix investor confidence dropped unexpectedly to a three month low for May, thereby raising concerns over the outlook for the region’s economy. Separately, the European Commission (EC) also lowered its Euro area economic growth forecast for 2015 and slashed its inflation outlook for the currency bloc for 2014 and 2015. However, the single currency remained steady against the US Dollar in yesterday’s trading session.

Other Currencies – Highlights

The Aussie Dollar moved higher against the US Dollar this morning after the RBA decided to keep its interest rate unchanged at 2.5%. Furthermore, the RBA Governor, Glenn Stevens reiterated that interest rates are likely to remain at current levels in the near future, given the improving domestic and global economic prospects. He also stated that inflation is expected to be consistent with its 2% to 3% target range over the next two years. However, gains in the Australian Dollar were capped due to a narrower trade surplus for March. Going forward, today’s Australian Budget will be keenly eyed by the Aussie Dollar investors ahead of the nation’s employment data and monetary policy statement scheduled later this week. Additionally, the US Fed Janet Yellen’s speech tomorrow along with some crucial Chinese macroeconomic data will keep market participants interested.