The latest NIESR projection showed that economic growth picked up in the UK for the three months ending in May. The agency also expects the Bank of England to raise interest rates early next year.

Across the Atlantic, two economic reports are expected to confirm a strong rebound in the economy, breaking free from the weakness seen in recent months. The retail sales report for May is anticipated to ease fears of weakness in consumer spending; while the weekly report on first time unemployment claims is expected to strengthen optimism towards the labour market.

Pound Sterling – UK Markets

Sterling gained traction against the majors yesterday, with the Pound-US Dollar pair holding above the 1.55 mark after the NIESR indicated that the UK economy picked up momentum in the three months to May, recovering from a dismal first quarter. NIESR, which also forecast a growth of 2.5% for this year, stated that it expects the BoE to raise interest rates early next year. Also supporting Sterling was data released earlier in yesterday’s session which showed that production in the industrial sector rose for April, helped by a surge in oil and gas production. The data added to optimism that GDP growth could rebound strongly in the second quarter of this year. Manufacturing output, on the other hand, missed consensus expectations for April.

Following last night’s Mansion House speech by the BoE Chief, Mark Carney, which had no domestic policy bearing, the Pound has retreated and is currently trading lower against the greenback. In the absence of any significant economic releases in the nation, Sterling investors will today note reports from the other major economies for direction.

US Dollar – US Markets

Recovering from its previous session lows, the US Dollar is trading on a stronger footing against most of its key peers this morning. The US retail sales report for May, scheduled later today, could further increase the appeal of the greenback, with markets anticipating retail sales growth to rebound from a flat reading in April. Soft consumer spending in recent months has fuelled concerns about a recovery in the economy, although encouraging payrolls data last month has added to signs that the economy is indeed emerging from the rough patch witnessed earlier this year. Today’s retail sales figure will be widely viewed for further confirmation of a rebound and also for cues to the timing of an interest rate rise. Additionally, the latest report on first time unemployment benefits due today is likely to validate an improving labour market situation in the US.

The US Dollar dropped to multi week lows against the Pound yesterday, as trading remained subdued with no significant US economic data during the day.

Euro – European Markets

The Euro lost ground against the Pound in yesterday’s trading session, while the single currency traded in a close range against the US Dollar. Disappointing industrial production figures from France and Italy pressured the single currency. Worries about the Greek debt crisis also weighed on sentiment towards the Euro, even as reports continued to indicate that key European officials are moving closer to agreeing terms for finalising a debt deal. Following a late night meeting with EU officials Greek Prime Minister, Alexis Tsipras, commented that the creditors had agreed to intensify negotiations ahead of a looming default at the end of this month.

Data released earlier in the day showed that French consumer price inflation ticked higher and in line with market expectations for May. However, the data has had a limited effect on trading, with the single currency continuing to trade on a weaker footing against its major currency counterparts.

Other Currencies – Highlights

The impressive Australian labour market numbers that came out earlier today pushed the Australian Dollar-US Dollar currency pair to just below the 0.78 mark in the morning Asian session. Australia’s upbeat job report surprised markets, with the unemployment rate dropping to a twelve month low in May. On a seasonally adjusted basis, the number of employed people rose sharply during the month. However, the participation rate, which shows the proportion of people who are employed and are looking for work opportunities, remained steady for May after it was downwardly revised for the previous month. The employment figures might bring some relief to RBA Governor, Glenn Stevens, who recently had pointed to a lack of demand in the nation’s economy and left the door open for further easing measures.

The Australian Dollar has now surrendered part of its early Asian session gains against the US Dollar and the focus now shifts towards weekly jobless claims and retail sales numbers in the US.