Ben Offers Mixed Signals

Although Ben Bernanke’s dovish tone, in his testimony before the Senate Banking Committee yesterday, signaled that a fresh round of QE remains in the offing, risk sentiment failed to receive a boost on account of the Chairman’s reluctance to explicitly outline the roadmap for the stimulus steps. With the lurking possibility of the central bank embracing stimulus measures, cues from today’s housing data and beige book survey will be closely eyed. Back home, claimant count growth slowed marginally for June and BoE minutes indicate that policymakers voted 7-2 to raise the asset purchase target. In Europe, markets remain focused on news flow about Germany’s vote on Spanish bank recapitalisation plan tomorrow.

Pound Sterling – UK Markets

Sterling maintained its recent gains against the Euro, as data revealed slower growth in the number of claimants seeking jobless benefits for June. Meanwhile, the unemployment rate declined to 8.1% for May. The pound fell against the Euro after the minutes from the Bank of England Monetary policy committee indicated that asset purchases remain in the realm of possibility. Policymakers voted 7-2 to restart QE. After the revelation yesterday that British consumer price inflation headed closer to the BoE’s target rate, the prospects of the central bank raising its asset purchase target during the course of the year has strengthened. Moreover, BoE Director, Paul Fisher, indicated that he does not foresee the possibility of the BoE attempting to ‘exit’ monetary policy “any time soon”. With no further major economic releases on offer in today’s session, markets await tomorrow’s retail sales data in order to gauge the impact of easing inflation on Britain’s consumers.

US Dollar – US Markets

The US Dollar traded marginally higher against its peers in today’s session, after the Fed Chairman, Ben Bernanke did not provide any explicit stance on a further easing program even as he reiterated his stance that the central bank may adopt more easing measures to support economic growth in the US economy if needed. Market participants would be looking for more signals from the Fed Chairman, when he addresses the House Financial Services Committee later today. Ahead of the two-day policy monetary policy meeting on 31 July 2012, the Federal Reserve’s Beige Book assessment of US economic conditions later today would be closely watched in order to see if the survey reveals signs of economic weakness in any of the 12 districts. With NAHB’s housing market index showing a sharp jump for July, the greenback is also expected to track the housing starts data which is expected to offer more cues about the shape of the nation’s housing sector.

Euro – European Markets

The Euro seesawed in yesterday’s session, dropping after Bernanke's testimony to the US Senate Banking Committee but staging a recovery as prospects of a third round of easing in the US remain on the horizon. There was some good news for the Eurozone yesterday as Spain's borrowing costs declined at the first sale of debt since the government unveiled its new austerity package. However, a fall in German economic sentiment for July indicated that core Euro area economies remained susceptible to the problems emanating from the region’s debt crisis. The Euro continued to remain range bound against the greenback and Sterling in today’s session. With Eurozone construction output and Italian current account being the only major releases due for today, traders are expected to closely follow news related to the German vote on the Spanish aid package scheduled for tomorrow.

Other Currencies – Highlights

In a widely anticipated move, the Bank of Canada held its key interest rate at a near-historic low of 1%. However, the central bank maintained its stance that withdrawal of the present monetary policy stimulus could not be ruled out. The Canadian Dollar edged higher against its peers on the back of underlying optimism that the central bank may raise its benchmark interest rate. The central bank indicated that the nation’s growth will be limited to 2.1% in 2012 and 2.3% in 2013, compared to its previous forecast of 2.4% growth for both the years. Moreover, data also revealed that Canadian manufacturing shipments unexpectedly declined for May. However, the CAD traded lower against the US Dollar in today’s session, on lack of clarity over more easing stimulus in the US and softer oil prices. The central bank Governor, Mark Carney and his policy advisors are expected to elaborate on BoC’s economic outlook in the quarterly monetary policy report due for release today.