UK GfK Consumer Confidence in Focus

Positive sentiment among consumers in the UK is likely to reflect in GfK consumer confidence data due overnight which is expected to show an improvement for May, as the domestic economy continues to grow at a steady pace. Separately, the BoE policymaker, Martin Weale, indicated late yesterday that the central bank should raise interest rates sooner rather than later, increasing the probability of a hike before the end of this year. With little on the European economic calendar to keep traders interested in the session ahead, today’s US GDP numbers will attract most of market attention and is expected to be revised downwards to show a contraction for the first quarter, seemingly affected by unfavourable weather conditions.

Pound Sterling – UK Markets

Sterling dropped against the Euro yesterday despite the release of weak German unemployment data for May. Additionally, the distributive trade survey disappointed markets as growth slowed more than expected for May, although it revealed that retail sales in the nation is heading towards sustainable growth as sales continued to grow for the sixth consecutive month. However, Sterling did not react to media reports which indicated that the BoE policymaker, Martin Weale, opined that the central bank should increase the cost of borrowing sooner rather than later in order to avoid painful hikes in the future. Meanwhile, the Pound is range bound against the majors this morning. Today’s UK GfK consumer confidence data will attract market attention which is likely to show an improvement for May, reflecting the overall positive sentiment among consumers on the back of a steady economic recovery in the nation. Additionally, investors in the Pound-US Dollar pair will keep a close eye on today’s slew of macroeconomic reports in the US, especially the revised GDP reading which might indicate a contraction in the world’s largest economy during the first quarter of 2014.

US Dollar – US Markets

The US Dollar continued its upward march against the common currency yesterday as encouraging reports released earlier this week boosted expectations that the US economy is gaining momentum during the second quarter of 2014. Additionally, rising prospects of the ECB unleashing fresh monetary easing measures in the next week’s policy meeting offered support to the greenback. The greenback is trading in a tight range against its major counterparts in today’s trading session as investors remain cautious ahead of the revised US GDP numbers scheduled for release later today. Market participants expect the figures to be revised downwards and show a contraction for the first quarter, as business investment and equipment spending are likely to be revised lower. Meanwhile, initial jobless claims data due later today is expected to show a decline last week, suggesting that the US labour market continues to recover at a steady pace. Among other economic releases, today’s pending home sales data will also attract attention for deeper insights into the state of the housing market.

Euro – European Markets

The ECB President earlier this week once again reaffirmed that the central bank is willing to use all the tools in its arsenal to counter deflationary pressures in the Euro zone. Against this backdrop, comments from ECB policymakers yesterday only cemented hopes that the central bank would adopt an accommodative approach to tackle the region’s economic woes. The clearest hint came from the ECB Executive Board member, Yves Mersch, as he stated that the ECB could craft a combination of policy measures in the next week’s meeting in order to tackle low inflation and low credit growth. As a result, the Euro dropped below 1.36 mark against the US Dollar yesterday. With no major decisive triggers across Europe today, the Euro is trading in tight range against the US Dollar this morning as investors preferred to remain on the sidelines ahead of tomorrow’s inflation reading for May from some of the European peripheral regions. Data released earlier today confirmed that on a sequential basis, Spain’s economy grew as expected during the first quarter of 2014. Additionally, today’s raft of macro data from the US will provide direction to the single currency in the latter half of the trading session.

Other Currencies – Highlights

The Japanese Yen is trading on a firmer footing against its major peers today, despite the release of disappointing domestic retail sales data for April, with sales of consumer durables declining sharply largely weighed down by the sales tax hike which came into effect during the month. With households stocking their inventories before the April sales tax hike, consumer spending is expected to weaken further in the coming months which might have a negative impact on the nation’s second quarter GDP numbers. A string of crucial domestic macroeconomic reports scheduled for release overnight, including the consumer price inflation print is likely to keep investors in the Japanese Yen on their toes. With inflation expected to accelerate for April, the Japanese Yen is likely to extend its recent gains. Additionally, the domestic labour market report will gain market attention in tomorrow’s session.