QE Off The Table – For Now

The BoE maintained a status quo monetary policy stance yesterday which proved highly supportive for Sterling against the majors. Concerns over the outlook for inflation poured cold water on market speculation for additional easing. Meanwhile, a sharp decline in Nationwide consumer confidence index, released earlier today, put pressure on the Pound. Risk appetite has taken a hit today following a huge unexpected trading loss from JPMorgan Chase, uninspiring Chinese economic data and ongoing Greek political deadlock. With little on offer in terms of European economic releases, markets await US consumer confidence and producer price inflation data due later today.

Pound Sterling – UK Markets

The BoE’s decision not to extend the current £325 billion asset purchase programme led the Pound higher against the majors in yesterday’s trading session. As widely expected, the central bank retained its benchmark interest rate at 0.5%. Meanwhile, the NIESR stated that the UK economy rebounded to growth in the three months to April and forecasted economic growth to remain broadly flat for the next six months. However, the Pound is trading under pressure against the Euro and the US Dollar this morning after Nationwide revealed that British consumer morale deteriorated sharply for April. The agency opined that the fragility in confidence is attributable to recessionary waves and weak labour market conditions. Meanwhile, data just out revealed that annual output producer price inflation in the UK eased for April. Against this backdrop, the BoE’s quarterly inflation report due next week is likely to garner increased market interest. Additionally, trade balance and employment data are also the crucial indicators on the economic calendar in the week ahead.

US Dollar – US Markets

The US Dollar has moved higher against the Euro and Sterling in today’s trading session, as an uncertain political scenario in Greece and downbeat economic data from China prompted traders to seek refuge in the greenback. Following dismal trade data in China yesterday, data released earlier today revealed a slower pace of growth in Chinese industrial production and retail sales for April. Moreover, hopes of additional QE continue to dwindle following yesterday’s unexpected drop in US initial jobless claims for last week. Calls for another round of easing measures dampened further after Minneapolis Fed President, Narayana Kocherlakota, opined that inflationary pressures could prompt the central bank to exit from its ultra-loose monetary policy in six to nine months. Among key economic releases today, traders expect annual producer price inflation in the US to ease for April, while the provisional reading for May’s University of Michigan consumer sentiment index is expected to remain flat.

Euro – European Markets

Today, the Euro staged a retreat against the US Dollar, as Greece continued to grapple with its inability to form a coalition government and following a weak set of economic data from China. The political deadlock in Greece has ignited fears among traders that the recent turmoil could force Greece to leave the single currency union. Moreover, risk sentiment took a hit after JPMorgan Chase revealed that it suffered a trading loss of at least $2 billion from a failed hedging strategy. In today’s trading session, the European Commission is scheduled to release its forecast for Eurozone growth, inflation, employment and public finances. Markets are also keeping an eye on Italian bond auctions due later today. However, a raft of major Euro sensitive events is expected to keep traders busy next week. Against the backdrop of the gloomy political landscape in Greece, major peripheral economies are scheduled to tap bond markets next week. Additionally, crucial GDP data of key Eurozone economies is also likely to garner market interest.

Other Currencies – Highlights

The Canadian Dollar has declined against the US Dollar this morning ahead of data that is expected to reveal a rise in Canadian unemployment rate and a slower pace of jobs addition for April. Additionally, yesterday’s data indicating a smaller than expected growth in the nation’s merchandise trade surplus for March, coupled with weak crude oil prices, has weighed on the Canadian Dollar. Moreover, mounting concerns over Greek political stalemate and data highlighting a weak Chinese economic landscape weakened demand for high yield currencies. On the flip side, data released yesterday signaled a firmer Canadian housing market with prices of new homes rising for the 12th consecutive month for March.