Daily Currency report
31st July 2012
Daily Market Commentary
From Peter-John Theuninck, Currency Analyst at Baydonhillfx
Momentum for the Euro seems to be building ahead of this evening US Federal Reserve Bank (Fed) monetary policy decision and tomorrow’s European Central Bank (ECB) meeting. German retail sales data disappointed the market and led many to believe the ECB would be opening the door for further interest rate cuts at their August meeting but it is unlikely that any policy action will be taken at this time.
Short covering ahead of these major market events and an expectation of monetary easing by the Fed allowed the single currency to appreciate further yesterday but that does not mean that the Euro-zone is by any means showing improvement in its underlying economic performance or stability. Euro-zone inflation data released yesterday remained steady for a third straight month in July but with the number of people out of work continuing to climb, consumers are being offered very little comfort in these numbers.
The Euro is maintaining its upside bias this morning as well with traders expecting a large demand for German bunds today ahead of the EU central bank meeting, risk aversion is still very prominent in the market. German and EU PMI manufacturing data is being released today and while activity is not expected to be slowing further analysts are looking at ongoing contraction of the manufacturing sectors. This will likely fuel increased speculation of monetary easing by the ECB and put pressure on the Euro.
Sterling has seen not support from the early morning release of Nationwide’s house price index which was worse than expected and with UK PMI manufacturing data expected to show further contraction in this sector, the Pound is probably not going to have the best of days ahead of tomorrow’s Bank of England monetary policy meeting.
Data from the United States realised yesterday showed consumer spending falling in June for the first time in nearly a year, suggesting the US economy was slowing and increasingly the likelihood of Fed policy action tonight. The effect on the Dollar was quite obvious as the Pound and the Euro pushed higher against the US currency. The first of three employment reports from the States is being released today, the ADP employment report is forecast to show fewer private sector jobs being created and should put pressure on the greenback as traders price in a greater chance on stimulus measures being introduced in the United States.