Light Economic Calendar Ahead
With no major economic releases scheduled for today, traders will focus on a report on US labour market conditions for June. In the Eurozone, just released data indicates that Italy industrial production fell surprisingly in May. Meanwhile, business sentiment in France remained stable for June.
Later this week, the Bank of England (BoE), in its first monetary policy meeting after the UK voted to leave the European Union, is expected to cut its benchmark interest rate to a new historic low. The central bank Governor, Mark Carney, had hinted of monetary policy easing in the summer. Meanwhile, the Eurozone and German consumer price inflation data for June will attract market attention. In the US, the consumer price inflation and retail sales data due towards the second half of the week will offer insights into the nation’s economic situation.
Pound Sterling – UK Markets
The Pound failed to hold gains and declined against the greenback and the Euro in the morning session amid existing uncertainty following Britain’s vote to leave the EU. Going forward, this week has two major UK economic announcements and both will have a significant impact over the Pound. On Tuesday the BoE Governor, Mark Carney, along with other officials will speak at a hearing of the Treasury Committee in Parliament. Later this week the Pound is likely to face a major test, as the BoE’s monetary policy committee will meet for the first time since last month’s UK referendum where it is expected to cut interest rate from 0.50% to a new historic low of 0.25% due to the significant Brexit effect on financial markets.
On Friday, Britain’s total trade deficit widened in May as exports declined in the run up to the country's Brexit vote. However, the nation’s trade may emerge as a bright spot as the lower level of Sterling could lead to higher demand for exports.
US Dollar – US Markets
The greenback lost ground against most of its major peers on Friday. However, losses were capped after the US labour market showed signs of recuperation as the economy created more than expected jobs, notching its largest gain in eight months in June. The nation’s economy added 287,000 jobs in June, a bounce back from May’s low number and a clear signal that the economy continues to make solid progress. A powerful rebound in hiring last month eased fears about a global economic slowdown, putting the nation on a strong footing to absorb market turmoil and global shocks. However, the nation’s unemployment rate rose more than projected in June from an eight-and-a-half-year low rate posted in May. On the other hand, the nation’s consumer credit advanced higher than expected in May.
The greenback has recouped some of its losses against most of its key peers this morning. Moving ahead, market participants await the release of US labour market conditions index for June and composite leading indicator for May, due later in the day.
Euro – European Markets
The shared currency is trading on a weaker footing against the greenback this morning, with investors eyeing fresh domestic economic releases. With no major economic data across the Eurozone today, market participants will look closely at Germany’s inflation rate and producer prices data scheduled tomorrow to get better insights in the Euro economy. Meanwhile, last month’s vote for Brexit flared up anxiety about the European financial system and brought Italy under the spotlight as the nation’s financial sector is on the verge of collapse. Given the nation’s weak economic growth and ongoing slide in the Italian banks, it is expected that the Italian banking system will witness a downfall which would have massive impact on Europe’s third-largest economy, or a bank bailout is on the cards.
Last week, data showed that Germany’s trade surplus narrowed more than expected in May from April, indicating that Europe’s top economy has lost some spark in the second quarter after a strong start to 2016. Additionally, the nation’s exports contracted in May and imports rose less than expected, fueling concerns over global trade trends.
Other Currencies – Highlights
The Japanese Yen is trading sharply lower against the greenback and the single currency this morning. In the upper house elections over the weekend in Japan, Prime Minister Shinzo Abe’s ruling coalition won a sweeping victory. Liberal Democratic Party’s win is likely to open doors for the Japanese government to compile fresh stimulus measures in the economy. On the economic data space earlier in the session, the preliminary reading on machine tool orders indicated a drop on an annual basis in June. Further, overnight data revealed that the nation’s machinery orders surprisingly dropped in May, its second consecutive monthly decline due to strength in the Japanese Yen and weaker domestic demand.
Looking forward, traders will keep an eye on Japan’s final industrial production data for May. Although the indicator pointed towards an advance in April, it is anticipated to confirm its sharp decline in May.