More QE or not to be?

In the UK, data just released indicated that services PMI remained unchanged for May. Recent weak domestic economic releases have strengthened calls for additional easing and have shifted focus on to the BoE’s monetary policy stance due later today. Meanwhile, the ECB yesterday maintained status quo at its policy meeting. However, hopes that the central bank might soon unveil measures to prop up ailing Spanish banks had led the Euro higher. Across the Atlantic, QE3 chatter is getting louder by the day, with top Fed officials supporting the probable move. Against this backdrop, today’s testimony by Ben Bernanke to US lawmakers holds significant importance.

Pound Sterling – UK Markets

The Pound is trading lower against the US Dollar and the Euro, as hints of additional stimulus by major central banks ignited speculation that the BoE might also join the league soon. Additionally, subdued PMI readings recently from Britain have strengthened the case for an additional round of easing. Data just released indicated that the service sector activity remained unchanged for May. In today’s trading session, all eyes are focused on the BoE’s monetary policy meeting, wherein markets tentatively expect the central bank to maintain its benchmark interest rate and asset purchase target unchanged at current levels. However, anaemic growth in manufacturing and service sector, coupled with dismal first quarter GDP data, has made matters a little trickier for the BoE. On the flip side, British retail sector outlook has brightened, as the BRC revealed a recovery in retail sales for May.

US Dollar – US Markets

The US Dollar slipped against the Euro in yesterday’s trading session, on hopes that Europe might deal swiftly with Spain's banking crisis and that the US could embark on a new round of monetary stimulus. Fed Vice Chairman, Janet Yellen and Atlanta Fed President, Dennis Lockhart, indicated that the slowing US economy might warrant further action from the central bank. However, the greenback has moved higher against the Pound this morning. Striking a sharp contrast, the Fed’s Beige book survey yesterday painted an upbeat picture of the economy and indicated that employment has shown signs of a "modest increase”. Meanwhile, revised non-farm productivity showed a more than expected decline in the first quarter. Amid the growing QE chatter, the Fed Chairman, Ben Bernanke, is due to testify to lawmakers later today. Markets would closely watch for any reference to the soft patch in current activity and the turmoil in Europe to measure its implications for further monetary stimulus. The jobless claims figures and consumer credit reading are also expected to garner modest attention in today’s session.

Euro – European Markets

Yesterday, the Euro advanced against the Pound and the US Dollar amid reports that Germany and EU officials are exploring means to rescue Spain's debt-laden banks. Hopes of a Spanish rescue plan outweighed disappointment following the ECB’s monetary policy meeting, which yielded no major measures to counter the region’s financial crisis. ECB President, Mario Draghi, opined that downside risks have intensified and added that the central bank would monitor all developments closely. The Euro has continued its upward trend against the majors in today’s session, as Spain and France prepare to test market risk appetite by issuing government bonds in an auction scheduled later today. The Spanish auctions will garner particular market attention, as key policymakers had raised concerns over the nation’s rising borrowing costs. The employment situation in the Eurozone remains grim, as unemployment in France grew more than expected for the first quarter. With no releases scheduled for today, central bankers on both sides of the Atlantic are expected to set the tone for today’s trading session.

Other Currencies – Highlights

The Swiss Franc is holding steady against the Euro and the US Dollar this morning. Data released earlier today revealed that annual consumer prices in Switzerland fell 1% for May, matching the previous month’s decline. Markets speculate that the Swiss National Bank (SNB) might revise the Swiss Franc’s floor against the Euro on persistent deflationary concerns. However, the state of the job market remained better than neighbouring nations. SECO revealed that Swiss unemployment fell to 3% for May, in line with market estimates and compared to a 3.1% rate posted in the previous month. With no major economic release scheduled for today, bond auctions in Spain and the US Fed Chairman, Ben Bernanke’s testimony is expected to set the trend for risk appetite. Additionally, markets keenly await crucial releases such as the SECO economic forecasts and the SNB’s interest rate decision, which are lined up for the week ahead.