BoE Remains Vigilant

The minutes of the BoE’s last monetary policy meeting just out has indicated that policymakers in the UK unanimously opted to pursue a “wait and watch” approach at their meeting. Meanwhile, the Bank of Japan, taking cues from both sides of the Atlantic, has joined the league of central bankers by promising fresh liquidity measures, supporting gains in high yield currencies in today’s trading session. However, it remains to be seen whether these gains could be sustained amid uncertainty over whether Spain would apply for a bailout. With little in the way of major European macro releases today, housing starts and building permits data in the US is expected to garner most market attention.

Pound Sterling – UK Markets

The Pound has advanced against the US Dollar in today’s trading session. The minutes of the BoE’s latest monetary policy meeting revealed that policymakers unanimously voted in favour of leaving the benchmark interest rate and asset purchase target unchanged at current levels. Meanwhile, Sterling weakened against the Euro, after the Japanese central bank agreed to induce a fresh dose of liquidity. Yesterday’s data confirmed that inflationary pressures remained at bay, despite the recent rise in energy costs. However inflation figures offered no clarity over the prospects of the BoE embracing fresh stimulus measures, as the current round of stimulus is scheduled for completion in November 2012. With inflation showing an easing trend, there is growing optimism among market participants that retail sales data scheduled for release tomorrow would continue to portray a positive picture of the economy. With the BoE’s minutes out, markets are expected to stay focused on the macro data from the US for further direction in today’s trading session.

US Dollar – US Markets

Traders have shunned the US Dollar this morning after the Bank of Japan injected a new round of monetary easing in order to aid the economic recovery. The recent dose of fresh liquidity promised by major central banks has triggered a wave of optimism that the global economy might stage a recovery in the latter half of 2012. Following their decision to vote in favour of QE3 last week, the New York Fed President, William Dudley and the Chicago Fed President, Charles Evans, expressed their confidence over the additional easing measures playing a pivotal role in supporting the ailing job market. However, the only dissenting member, Jeffrey Lacker, cast doubt over the possibility of the recent easing measures repairing the economy. Meanwhile, the housing landscape in the US continued to offer solace to traders, as data from the NAHB revealed that confidence among home builders climbed to a six year high. It remains to be seen if the same resilience is reflected in housing starts and building permits data due later today.

Euro – European Markets

Market participants remained cautious in the midst of growing fears that Spain might delay to seek fresh aid to tackle its fiscal issues and led the Euro to edge lower against both the US Dollar and Sterling in yesterday’s trading session. However, the common currency has rebounded against the majors this morning after the Bank of Japan joined the Fed and the ECB in pumping a fresh round of monetary stimulus for reviving economic growth. Following the path breaking measures adopted by the ECB in its last monetary policy meeting, the change in economic landscape was evident in German investor confidence barometer released yesterday, which indicated that the index recovered for September after falling for four consecutive months. Additionally, Spain’s closely eyed short term bond auction was also successful. With construction output being the only economic indicator slated for release in this session, tomorrow’s manufacturing and services PMI data across Europe will be keenly eyed for fresh insights over the latest trends in the economy. Additionally, developments in Spain could also prove vital in determining the direction of the Euro against the majors.

Other Currencies – Highlights

With the Fed and ECB announcing measures to counter the recent economic woes, the Bank of Japan refrained from restraint, as it decided to expand its asset purchase fund by ¥10 trillion to revive the economy. The central bank Governor, Masaaki Shirakawa, stated that new monetary easing was essential in order to prevent the Japanese economy from falling out of the “path towards sustained growth with price stability”. Among other macro releases, data released earlier today confirmed an uptick in leading and coincident indices for July. Markets are expected to keep a track of trade balance and machine tool orders data slated during this week to gauge the impact of the global slowdown on the Japanese economy. Apart from crucial domestic releases for the week, traders will also keep an eye on an increasingly volatile territorial dispute between China and Japan.