Central Banks In Focus

The Bank of Japan has passed the baton to the Bank of England and the European Central Bank by announcing aggressive monetary stimulus measures earlier today. Against this backdrop, a surprise move from either of the European central banks in their monetary policy meetings later today cannot be ruled out. Broader consensus expects the BoE to hold fire, while the ECB could offer a dovish outlook on interest rates. Meanwhile, the latest PMI reading indicated that service sector activity in Britain grew at a faster than expected pace for March, providing some relief to Sterling investors. However, the equivalent reading across Eurozone has disappointed market participants. In the US, yesterday’s weak ADP employment report does not bode well for tomorrow’s monthly jobs data.

Pound Sterling – UK Markets

The Pound has recovered some early session losses against the US Dollar and the Euro this morning after UK services sector, considered as the backbone of the economy, inspired confidence among market participants. This has come as a positive surprise, given the recent string of dismal manufacturing and construction activity data. Meanwhile, markets keenly await the BoE’s monetary policy meeting due later today to decipher what policy moves the central bank might adopt to reignite the economy. Despite the UK Chancellor tweaking the inflation remit in the annual budget and providing leeway to the BoE to introduce easing measures, MPC members are likely to keep the monetary policy stance unchanged due to elevated inflationary pressures. Taking the broader view into account, the BoE Governor, Mervyn King, risks the chance of remaining in minority among MPC members by maintaining his call to expand the central bank’s asset purchase target. Apart from the BoE meeting, comments from the ECB Chief, Mario Draghi, are likely to have a profound influence on today’s trading session.

US Dollar – US Markets

Market speculation of continuing monetary stimulus from the Fed received a boost after ISM services activity unexpectedly slowed for March, leading the US Dollar to nudge lower against the Euro and the Pound yesterday. Moreover, ADP employment data revealed that US companies hired at the weakest pace since October 2012 amid weak growth in services and manufacturing sector, adding to signs that the economic recovery could be hitting a soft patch. Despite the US economy experiencing headwinds of late, San Francisco Fed Chief stated that central bank could start tapering its massive bond buying programme by this summer. In this context, comments from few other Fed officials due later today would be closely followed for hints on the Fed’s future policy moves. With the ADP employment report painting a dismal picture, markets keenly await today’s initial jobless claims data ahead of the all important non-farm payrolls report due tomorrow. Additionally, comments from the Fed Chief, Ben Bernanke, scheduled later today could have a bearing on risk appetite.

Euro – European Markets

Dismal services PMI data in France, Germany and Eurozone has weighed on risk appetite, leading the common currency to trade lower against the US Dollar in today’s trading session. The ECB monetary policy meeting due later today is likely to bring further volatility in the Euro against the majors. With the BoJ resorting to bold easing measures in its monetary policy meeting earlier today, it remains to be seen whether the ECB also follows suit and loosen its policy to help the region come out of a long bout of economic weakness. Traders would also be all ears to Draghi’s post meeting press conference wherein he airs his views on the current state of economy. A rather pessimistic view on account of the recent turmoil in Cyprus and Italy would likely pressurise the single currency in today’s session. Apart from the ECB meeting, Eurozone retail sales due tomorrow would garner market attention. With last week’s German retail sales surprising on the upside, it remains to be seen whether tomorrow’s data also echoes similar results.

Other Currencies – Highlights

The Japanese Yen took a plunge against the majors and lost almost 3% against the US Dollar this morning after the BoJ announced fresh stimulus measures to boost the economy and lift the country out of its long economic malaise. The central bank under the reins of the new Governor, Haruhiko Kuroda, a vocal advocate of aggressive stimulus measures, brought sweeping changes to the BoJ’s monetary policy stance. In an effort to bring an end to deflation, the central bank announced radical new measures by adopting a new balance sheet target, extending the duration of government bonds it buys for monetary easing and planning to bring forward the timing of open-ended asset purchases. With a light economic calendar today, the ECB monetary policy meeting due later today could have a bearing on currency markets in today’s session. Additionally, the BoJ’s monthly economic report due early tomorrow would hold market interest.