Sterling Looks for Direction

In the wake of a relatively light global economic calendar today, currency markets are likely to remain largely subdued. At home, following Mark Carney’s comments this week highlighting that slack in the domestic economy continues to persist, next week’s slew of macro releases including inflation, retail sales and the revised GDP reports will be closely eyed by investors for further cues about the health of the overall economy. Across the Atlantic, market focus is on today’s consumer confidence data as dismal industrial production numbers released yesterday highlighted that economic recovery remains uneven. In Europe, yesterday’s downbeat Euro zone first quarter GDP report is likely to strengthen the ECB’s resolve to use unconventional monetary policy tools in its policy meeting next month.

Pound Sterling – UK Markets

Despite the absence of major domestic economic data, Sterling recovered some of its previous session losses against the majors yesterday, tracking largely weak global economic cues. In Europe, the Euro zone economy grew at a slower than expected pace during the first quarter, thereby adding weight to arguments that the ECB might adopt measures to boost economic recovery in the region. The Pound also registered gains against the US Dollar yesterday following the release of mostly weak US macroeconomic data. With little on the domestic macro front, the Pound is trading in a tight range against its major counterparts in today’s trading session. Later today, investors in the Pound-US Dollar pair will keep a tab on US consumer sentiment data for further direction. Going forward, in the wake of the dovish view of the economy offered by Mark Carney this week, the UK consumer price index, retail sales and the revised first quarter GDP numbers will be closely followed by investors next week. Additionally, minutes of the BoE’s latest monetary policy meeting will gain market attention in the week ahead for gauging policymakers’ outlook towards the economy, especially the housing market.

US Dollar – US Markets

On expected lines, the US consumer price inflation rose to a 10 month high for April and the number of people filing jobless benefits dropped to a six year low last week, thereby strengthening views that the economy continues to recover during the second quarter of 2014. However, factory activity data was mixed, as the Empire state manufacturing activity expanded sharply while industrial output in the US unexpectedly fell for April. Moreover, the housing market continues to remain weak as the NAHB data indicated that sentiment among homebuilders dropped to the lowest level in one year for May. Against this backdrop, today’s housing starts and building permits data will attract modest market attention. The mostly weak economic data released yesterday suggests that the US economy still needs support as indicated by the US Fed Chief recently, thereby weighing on the US Dollar against the majors in yesterday’s trading session. Meanwhile, the greenback is trading in a tight range against its major counterparts in today’s trading session. Markets will keep a tab on today’s Reuters/Michigan consumer confidence data which is likely to show a marginal improvement for May.

Euro – European Markets

The single currency recovered most of its early session losses against the greenback in the latter half of yesterday’s trading session following mostly weak macro data in the US. The Euro was under pressure in the initial trading session after data indicated that the Euro zone economy grew at a slower than expected pace during the first quarter of 2014, as French economic growth unexpectedly stalled and Spanish and Italian GDPs contracted. However, German economy expanded at a faster than anticipated pace. On expected lines, the Euro zone consumer prices data confirmed that inflation in the region accelerated for April, although it remained significantly lower than the ECB’s benchmark target. The weak data has continued to add further pressure on the ECB to act in order to shore up the region’s economic recovery and stop inflation from falling too low. The Euro is range bound against the majors this morning. With no major macro data across Europe, today’s US Reuters/Michigan consumer confidence report will be eyed for further direction. Also, next week’s European manufacturing and services activity data will be on traders’ radar for gauging any signs of improvement in the region.

Other Currencies – Highlights

The Canadian Dollar is range bound against the US Dollar this morning following volatility seen yesterday on the back of the largely weak US macroeconomic data. The Bank of Canada Deputy Governor, Lawrence Schembri, indicated that interest rates in the nation are likely to remain low for an extended period of time, pressurising the Canadian Dollar against the greenback. However, comments from the Fed Chief, Janet Yellen, highlighting that more needs to be done to achieve a healthy economy and better than expected domestic manufacturing sales numbers capped losses in the Canadian Dollar against its peers. With no domestic economic data scheduled today, investors in the Canadian Dollar will keep a tab on the US Reuters/Michigan consumer sentiment report and housing market data for further direction to risk appetite. Moving forward, next week’s domestic consumer price inflation and retail sales reports will prove crucial for the Canadian Dollar against the majors in the near term.