BoE Divided on Stimulus Size

At home, the minutes of the BoE’s latest monetary policy meeting recently released indicate that BoE policy makers were divided on their bond-purchase target. With initial euphoria surrounding the Greek debt deal settling down, the market now seems to be concerned about the implementation of the agreed strict austerity measures in Greece. Data just out indicates that manufacturing PMI in Germany and the Eurozone missed market consensus and is likely to put pressure on the Euro in today’s trading. Across the Atlantic, market participants are eyeing existing home sales data which is expected to show an improvement.

Pound Sterling – UK Markets

Sterling has edged marginally higher against the Euro, with the initial optimism on the Greek debt deal seeming to have fizzled out. In the backdrop of the successful Greek debt deal, Chancellor George Osborne opined that the bailout was good for Britain and would “hopefully” allow Europe to “move on”. Additionally, lower-than-expected manufacturing activity data in Germany and the Eurozone further aided the Pound against the Euro. However, the Pound has declined against the US Dollar, after Charles Bean, Deputy Governor of the BoE cautioned that the Eurozone debt crisis “represents the biggest downside risk” to the UK. However, he has assured that the nation’s economy is expanding again and added that inflation should stay subdued. The minutes of the BoE’s latest policy meeting indicates that policy members were unanimous on keeping the benchmark interest rate at the record low of 0.5% percent. While there was also a division on the bond-purchase target, with two of the members calling for £75 billion of additional stimulus.

US Dollar – US Markets

The US Dollar has advanced against the majors this morning as concerns about the implementation of the austerity measures in Greece deterred investors to place bets on high yield currencies. Moreover, discouraging manufacturing PMI data in Germany and Eurozone prompted traders to move towards the US Dollar. Market concerns surrounding the US housing market are expected to subside further with data due today. It is likely they will indicate that sales of previously owned homes rose for a fourth consecutive month in January to the highest level since May 2010. Meanwhile, the US Treasury Department is expected to roll out a corporate tax reform plan later today; wherein expectations are low for any major tax code overhaul in an election year.

Euro – European Markets

The Euro is trading lower against both the Pound and the US Dollar with worries over manufacturing activity in the Eurozone resurfacing. Data just released indicates downbeat reading for manufacturing PMI in both Germany and the Eurozone, despite the recent liquidity operations undertaken by the ECB. However, manufacturing activity in France unexpectedly expanded for February. Additionally, the Euro was pressure against the majors after the initial euphoria surrounding the Greek bailout took a backseat, giving way to concerns that the deal was not enough to solve the nation’s debt woes. Traders remain worried that a Greek default is still in the realm of possibility amid fears that the government formed after the election may fail to adhere to policies set by the Troika. Meanwhile, markets await the release of new industrial orders in the Eurozone and the outcome of German bond auction.

Other Currencies – Highlights

The Yen has continued to retreat against the majors amid concerns over the health of the Japanese economy after recent data indicated weakness. Meanwhile, a senior official at Japan's Ministry of Finance indicated that the Yen’s softening was due to the Eurozone agreement on a Greek rescue package and last week's monetary easing by the Bank of Japan (BoJ). The BoJ Governor, Masaaki Shirakawa, indicated that the central bank set an inflation target to make efforts to end deflation. However concerns remain well exemplified. Comments from the former Deputy Governor of the BoJ, Toshiro Muto, stated that swelling bond sales risks are pushing Japan to a “trigger” point where capital inflows reverse and bond yields rise. Among the economic releases today, data revealed that super market sales continued to contract for January, while the all industry activity index recovered for December.