A Lack of Stimulus

The BoE minutes of the recent monetary policy meeting and the latest inflation reading have added to beliefs that the central bank might maintain its “wait and watch” stance. Meanwhile, labour market data just out has surprised on the upside with jobless benefit claims unexpectedly declining for July, which could prove positive for the Pound in today’s session. In the US, the recent recovery in the labour market is acting as a catalyst in reviving household spending activity, evidenced from yesterday’s better than expected retail sales data. Markets will keep a close eye on today’s inflation and regional manufacturing data to gauge how long the Fed can keep its powder dry.

Pound Sterling – UK Markets

The Pound advanced against the Euro in yesterday’s trading session, on speculation that an unexpected jump in UK consumer price inflation could influence the central bank to ease monetary policy further. Sterling is trading marginally lower against both the US Dollar and the Euro in today’s session. The minutes of the BoE’s August monetary policy meeting, just released, has indicated that the decision to leave interest rates on hold and the size of the asset purchases program unchanged was unanimous. On the positive side, the number of people claiming unemployment benefit unexpectedly declined for July, as additional jobs created during the Olympics continued to bolster the labour market. Additionally, the unemployment rate declined to 8% for June. The focus now shifts to the other side of the Atlantic as traders await key economic releases from the US in today’s session. Additionally, UK retail sales data out tomorrow will be analyzed for signs of revival in the UK economy.

US Dollar – US Markets

The US Dollar strengthened against its major peers in yesterday’s trading session as upbeat retail sales data for July added to optimism of a domestic economic recovery, curbing hopes of further monetary easing from the Federal Reserve. The positive non-farm payrolls data earlier this month also offered evidence that the US economy is on track for a recovery in the second half of 2012. However, the greenback has failed to make decisive moves against the majors this morning, as traders cautiously await today’s domestic macro releases for further hints over the stance that the Fed might adopt in the near future. Among key releases today, consumer price inflation for July is expected to hover below the Fed’s target rate for the third consecutive month, while industrial production growth is forecast to accelerate slightly from the previous month. The forward-looking Empire State manufacturing index for August is expected to be keenly scrutinised for signs of US activity in the initial phase of the third quarter.

Euro – European Markets

Although the German and French GDP data offered a ray of hope yesterday, the optimism soon faded away after data revealed that Eurozone GDP contracted 0.2% for the second quarter, escalating chances of the Eurozone economy falling back into recession for the first time since 2009. Forward-looking German ZEW sentiment index also slid for the fourth consecutive month, clouding the growth outlook for the nation and heightening worries that it could fall prey to the region’s prolonged debt woes. Meanwhile, sovereign debt fears resurfaced to haunt markets, as the European Economic and Monetary Affairs Commissioner, Olli Rehn, indicated that Spain is considering a request for a sovereign bailout. The Spanish Prime Minister, Mariano Rajoy, however, remained tight-lipped on such plans. Reports indicated that the Greek Prime Minister, Antonis Samaras, would hold talks with the German Chancellor and the French President in Berlin to suggest that public spending cuts be spread over four years instead of two. With no major releases from the Eurozone and the Euro trading flat against its major counterparts this morning, markets look forward to key releases from the US for further direction.

Other Currencies – Highlights

The Aussie Dollar is trading lower against its major peers in today’s trading session after data from the Westpac/Melbourne Institute revealed that its index of consumer sentiment slipped for the current month. Moreover, risk aversion among market participants grew, as yesterday’s retail sales data from the US dented hopes of the Fed inducing a fresh round of stimulus to aid the nation’s economic growth. Among other macro indicators, data from the Australian Bureau of Statistics revealed that the wage price index rose for the second quarter. With no further domestic releases scheduled for today’s session, markets will keep a close eye on consumer price inflation and regional manufacturing data from the US for further clarity over the stance that the Fed plans to adopt in the near future. Additionally, tomorrow’s report on Australian consumer price inflation expectations might prove crucial for the Australian Dollar, as it might aid the Reserve Bank of Australia to chart out further policy action.