BoE Keeps the Door Open

Yesterday’s minutes of the BoE last policy meeting highlighted that further liquidity boosting measures could not be ruled out as lowering interest rate and providing a £75 billion liquidity injection were among the policy measures that played on the minds of the policymakers. In a positive development on the macro front, retail sales continued to grow, albeit at a slower pace and unemployment rate declined. The US Fed Chairman’s insistence that the central bank would remain vigilant and take measures to prevent a slowdown has strengthened speculation of a QE3. US jobless claims, Spanish bond auctions and German vote on the Spanish aid are key events to look out for today.

Pound Sterling – UK Markets

Sterling weakened against the US Dollar in the initial trading session yesterday after minutes of BoE’s latest monetary policy meeting indicated that the BoE policymakers contemplated using more easing measures to revive Britain’s economic growth. An interest rate cut and higher dose of liquidity were among the measures discussed by the members of the rate setting committee. However, the Pound staged a recovery against the greenback in the latter half of the session and recouped most of its losses on rising hopes that the US Fed might induce fresh easing measures to stimulate its economy. The Pound has continued to strengthen against the US Dollar this morning. Data just in has revealed that retail sales in Britain grew less than expected for June. Despite a greater-than-expected increase in the number of people claiming unemployment benefits for June, positive impact of the London Olympics seemed evident as data revealed that Britain’s jobless rate unexpectedly slipped to 8.1% for May. Cues from both sides of the Atlantic are expected to set the risk tone for today’s trading session.

US Dollar – US Markets

The US Fed Chairman, Ben Bernanke's congressional testimony on Wednesday echoed his views delivered to the Senate, emphasising the Fed's willingness to revive the nation’s economic growth without providing details about specific steps that the central bank might adopt. The US Dollar moved lower against its major peers in yesterday’s trading session as Bernanke continued to indicate that the Fed might not hesitate to use easing measures to aid the economic recovery. However, the Fed in its latest Beige Book business survey opined that the US economic activity continued to expand at a “modest to moderate” pace in June and early July. In today’s session, the US Dollar has continued its downtrend against the majors on persistent speculation of a QE3 by the US Federal Reserve. With the job market playing on the mind of the Fed’s policy makers, today’s jobless claims data is likely to be closely eyed considering its growing influence over the central bank’s decision making process. Against the backdrop of yesterday’s positive housing starts data, existing home sales and the Philadelphia Fed manufacturing data due later today are expected to provide further hints over the strength of the recovery.

Euro – European Markets

In today’s trading session, the Euro moved higher against the US Dollar and traded close to the 1.23 mark as traders remain hopeful that the US Fed Chairman, Ben Bernanke’s dovish tone and weak labour market conditions in the US could spark a fresh round of easing later this year. Meanwhile, Spain’s bond auction due later today is likely to garner market attention as spiraling borrowing costs threaten Spain to lose access to bond markets. A key feature for today’s session, the German Parliament’s vote on Berlin's contribution to the recent aid package for the Spanish banking sector. Meanwhile, as the backdrop of today’s parliamentary vote, the German Chancellor, Angela Merkel, cautioned that she still has doubts whether the European project would work. With Germany trying to lower the burden on its shoulders, the IMF urged the ECB to play a bigger role in combating the crisis. The Euro is expected to move in tandem with prevalent risk appetite in today’s trading session which is expected to be influenced by the Spanish bond auction and economic releases from the US.

Other Currencies – Highlights

The New Zealand Dollar has climbed against the US Dollar this morning as the US Fed Chairman, Ben Bernanke, continued to assert that further stimulus measures remain in the offing, boosting risk appetite among market participants. Meanwhile, markets are expected to remain focused on the next week's monetary policy meeting of the Reserve Bank of New Zealand especially after tepid second quarter inflation figures earlier this week. Tomorrow’s credit card spending data is also expected to offer some cues over the strength of the nation’s consumer sector. In the absence of major economic release from New Zealand, today’s vote in Germany over the recent aid package to Spain and the outcome of the Spanish bond auction are expected to provide direction to high yield currencies.