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24 Jun 2014
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24 June 2014 (Currency Solutions)

UK BBA Mortgage Approvals Drop

The just out disappointing mortgage approvals report in the UK should alleviate concerns the BoE may have that rising prices in the housing market are indicative of the start of a bubble. Nevertheless, this week’s Financial Stability report would be keenly watched for measures to curb the overheating domestic housing market. The BoE Governor, along with some MPC members, are expected to shed further light on the central bank’s policy stance going forward, especially after hawkish comments by him last week.

Across the Atlantic, today’s housing market reports will be keenly eyed after yesterday’s upbeat US existing home sales data suggested that the housing market might have regained its footing this spring. Across Europe, the German Ifo business sentiment deteriorated more than expected in June, thereby raising questions over the impact of the recent monetary measures opted by the ECB.

Pound Sterling – UK Markets

A just released economic report has revealed that mortgage approvals in the nation dropped for a fourth consecutive month in May, abating concerns about potential overheating in the UK housing market. The weak data has failed to take sheen off the recent optimism surrounding the Pound, with the domestic currency trading above the 1.70 mark against the US Dollar in today’s trading session. Against the backdrop of a hawkish stance adopted by the BoE Governor last week, the testimony on the inflation report by Mark Carney today before the Parliament’s Treasury Committee will be keenly watched.

With lack of economic releases in the UK, Sterling remained nearly unchanged against the majors yesterday. The central bank in its quarterly credit conditions survey indicated that the lenders in the nation expect the rate of household loan approvals to fall significantly in the third quarter, citing tightening mortgage standards.

US Dollar – US Markets

Expectations that the US economic recovery is becoming entrenched were boosted yesterday following the release of upbeat economic data. Manufacturing activity in the US for June expanded at its fastest pace in four years. Furthermore, the housing market seems to have tentatively regained its footing following some weakness seen earlier this year, with the sale of previously owned houses in the nation in May registering the biggest monthly gain in almost three years. Against this backdrop, today’s housing market reports will be on the traders’ radar to gauge the pace of recovery in the sector. The greenback traded range bound against the majors yesterday, despite the encouraging data. Additionally, investors will keep a tab on events unfolding in Iraq after the US Secretary of State, John Kerry, opined that the threat from militants storming across Iraq might force the US to take military action.

The US Dollar is trading in a tight range against the majors this morning. Apart from housing market reports, consumer confidence and Richmond region manufacturing activity prints will be in focus today. Additionally, speeches from some US Fed officials will attract market attention.

Euro – European Markets

The Euro is trading range bound against its major peers this morning, recovering from losses early in the session. Data released earlier today indicated that the German Ifo business sentiment indicator deteriorated for June. Today’s disappointing German Ifo and the weak regional PMI numbers released yesterday suggest that recovery in the Euro zone continues to remain uneven and fragile, despite the central bank introducing extraordinary monetary policy measures earlier this month.

Business activity in the Euro zone slowed for the second consecutive month for June. PMI numbers for France signaled further contraction while German manufacturing and services activity continued to stay in the expansion territory, albeit shy of market expectations. Meanwhile, the ECB Vice President, Vitor Constancio, raised concerns that the ultra-loose monetary policy is causing housing markets in some countries to overheat, while Ewald Nowotny, reiterated the recent comments from Mario Draghi, stating that interest rates would continue to remain low until the end of 2016. Against this backdrop, investors will keep an eye on speeches from few ECB officials later today for further direction.

Other Currencies – Highlights

The Swiss Franc continued to edge higher against the US Dollar this morning after data released earlier today indicated that Swiss trade surplus widened more than expected, despite exports declining marginally for May. The Swiss Franc advanced against the greenback yesterday, despite upbeat US macroeconomic data. Last week, the SNB had kept its key interest rate unchanged and reiterated that it is prepared to purchase foreign currency in unlimited quantities and take further measures if necessary.

With no major domestic economic releases today, a slew of macro data from the US along with speeches by some Fed official have the potential to alter the direction for the Swiss Franc against the US Dollar going forward. Additionally, markets will keep a watch on the SNB quarterly bulletin and KOF leading indicator to gauge trends in broad economic activity.