Inflation Falls Closer to BoE Target

Inflation worries at home remain on the back burner, with data just out indicating an easing trend for August. This has shifted focus toward the minutes of the BoE’s last policy meeting to gauge the central bank’s stance following what appear to be signs of economic recovery in the UK. Today’s German economic sentiment data is likely to be closely watched, especially after the ECB’s recent decision to embrace fresh measures to counter economic weakness. Additionally, Spanish bond auctions later today should give a clearer picture of market sentiment in the midst of growing reluctance among the nation’s policymakers to seek further aid.

Pound Sterling – UK Markets

The Pound has staged a recovery against the Euro in today’s trading session ahead of the German ZEW investor sentiment data due later today, which is expected to show that confidence amongst investors remained weak for September. Meanwhile, data just in has revealed that annual consumer price inflation in the UK dipped marginally to 2.5% for August from 2.6% recorded in the previous month. Against the backdrop of easing price pressures, it remains to be seen if inflation will fall below the BoE’s target rate of 2% before the end of this year. With the key inflation data release, markets are expected to closely study minutes of the BoE’s latest monetary policy meeting, scheduled for release tomorrow, for clarity over the central bank’s stance in the near future. With a light domestic economic calendar ahead today, Sterling is unlikely to have independent moves against the majors and would likely track economic releases from the Eurozone and the US for further cues.

US Dollar – US Markets

The greenback continued to lose ground against the majors in yesterday’s trading session in the wake of recent monetary easing by the US Federal Reserve. Meanwhile, manufacturing in the US remains a worry, with yesterday’s data revealing a sharp deterioration in the New York Fed’s manufacturing index for September. In today’s trading session, the US Dollar has trimmed its losses against both the Pound and the Euro, as traders seem to have adopted a defensive stance following the recent rally in high yield currencies. However, today’s sentiment indices data from Germany holds significance in determining risk appetite amongst investors. On the domestic macro front, the NAHB housing market index will be closely tracked to see if the housing sector maintains its recent resilience. Additionally, comments from Fed policymakers are likely to garner market attention for views regarding the effectiveness of the current stimulus program.

Euro – European Markets

The Euro has failed to hang on to the 1.31 mark against the US Dollar this morning, as traders trod cautiously amid uncertainty over the stance that Spain’s policymakers plan to adopt for tackling the nation’s fiscal problems. The Spanish 10 year bond yield once again climbed above the 6% mark, suggesting that some of the newly found optimism amongst investors was waning, broadly due to Spain’s determination to resist a bailout. This has indeed turned market focus on to the short term bond auction in Spain later today. Meanwhile, data due later is expected to show that confidence amongst investors remained at levels close to this year’s lows, despite the recent crisis combating measures adopted by the ECB. At an annual press conference, the German Chancellor, Angela Merkel, urged Greece to press ahead with reforms and stressed that the EU should not rush into the creation of a pan-European supervisory body for banks.

Other Currencies – Highlights

The Aussie Dollar has slipped against its major peers in today’s trading session, as minutes of the Reserve Bank of Australia’s last monetary policy meeting revived hopes of an interest rate cut. According to the minutes, policymakers were of the view that the inflation outlook continued to offer room to adjust policy in response to sharp deterioration in the growth outlook. Policymakers further noted that the slowdown in Chinese growth and weaker commodity prices continued to pose threats to the Australian economy. Additionally, the political tussle between China and Japan has further aggravated concerns. With no major domestic release scheduled for today, the Aussie Dollar is expected to track market risk appetite following the release of the economic sentiment data from Germany. During the week, the Australian Dollar is expected to closely follow the manufacturing PMI readings from the Eurozone and China for further direction.