An Interesting Week Ahead
All is quiet on the domestic front! The UK economic calendar remains light today, with some tier-one economic releases scheduled this week including consumer price inflation and retail sales. Any positive surprise on these is likely to bring forward expectations of an interest rate rise in the nation, expect that debate to gain momentum in the upcoming months!
The prime focus this week will be on the minutes of the latest Fed monetary policy meeting for signs of any inclination towards an earlier than anticipated rate rise. With few policymakers recently sounding upbeat about the US economy, it would be interesting to track the opinion of a majority of policymakers, and good luck with that! Across Europe, markets will now eye the outcome of the voting in the German Parliament scheduled on Wednesday to ratify the Greek debt deal, ah yes, the German Parliament, where governing one nation, is just...well, not quite enough!
Pound Sterling – UK Markets
The Pound is trading above the 1.56 mark against the US Dollar this morning. Rightmove data released earlier this morning showed that house prices in the UK dropped on a monthly basis in August. Though house prices recorded a fall in August, it marked the strongest August housing market since the credit crunch in 2007. With little on the economic front today, market focus now shifts to the crucial consumer price inflation, retail sales and public finances data scheduled for release later this week. With market participants still divided over an interest rate rise in the UK, these important economic releases would provide some food for thought to policymakers to consider their policy strategy going forward. Additionally, traders would closely eye any progress being made in concluding a third bailout deal for Greece this week. Any surprises on this front could trigger volatility in Sterling-Euro pair, so yes, expect some volatility!
In the absence of major domestic macro triggers on Friday, Sterling traded in a tight range against both the Euro and the greenback.Is it the calm before the storm? We’ll soon find out.
US Dollar – US Markets
So where did all that mixed data from the US last week leave us? The greenback pared its early session losses against the common currency and the Japanese Yen on Friday amid this data. On the positive side, a survey showed that producer price inflation in the US eased less than expected for July, despite low oil prices and a stronger home currency taking its toll on local operations. Furthermore, another report revealed that US industrial output expanded more than expected for July, amid a surge in automobile production. While these two economic indicators strengthened expectations that the US Fed is moving closer towards a rate rise, the preliminary Reuters/Michigan reading showed an unexpected deterioration in consumer morale for August. Market participants will eye minutes of the Fed’s latest policy meeting this week to gauge the timing of an interest rate rise in the US. Watch this space!
With little on the domestic macroeconomic front today, the US Dollar is trading mixed against its key peers. Going forward, investors will eye consumer price inflation excluding food and energy in the US which is anticipated to remain unchanged for July, somethings gotta give!
Euro – European Markets
Now to Europe, and those missed targets! On Friday, preliminary data released in the Euro zone revealed that the region’s economy expanded at a slower than expected pace for the second quarter, with GDP growth in Germany and France missing estimates. This report raised fears over the effectiveness of the ECB’s massive stimulus programme, especially after another survey in the previous week showed that industrial production shrank more than expected for a second straight month for June. However, traders showed little reaction to the downbeat GDP data and the Euro initially rose against the US Dollar, before reversing the gains in the latter half of the trading session. Separately, in a noteworthy development, Euro zone finance ministers agreed to the new bailout deal for Greece, demanding Athens to increase taxes and implement more austerity. I said noteworthy, not new.
The Euro is trading on a weaker footing against the majors this morning ahead of Euro zone’s trade balance data which is expected to show a wider surplus for June. In the week ahead, US FOMC’s latest minutes and the European Commission’s flash consumer confidence reading for August will be eyed for further direction.
Other Currencies – Highlights
Momentum appears to have halted in Japan!. The Japanese Yen has shown little reaction against the majors this morning following the release of the nation’s second quarter GDP report. Data showed that the Japanese economy contracted in the second quarter due to soft private sector demand after registering an expansion in the previous quarter, although the contraction was less than market estimates. Today’s numbers might have raised a few eyebrows amongst policymakers who are struggling for two years to lift the economy out of deflation. It remains to be seen whether today’s GDP data prompts policymakers to provide further fiscal support to the economy in its next monetary policy meeting.
With little on the global macro front today, market participants will eye Japan’s trade balance data scheduled for release on Wednesday for further direction to the Japanese Yen against the majors. However, most of the market attention will be focused on the minutes of the latest FOMC meeting due this week for hints on the future interest rate trajectory in the world’s largest economy.Yes, it really is all eye’s on the Fed!!
As always, have a great day!