In his much awaited address yesterday, Mark Carney stressed the focus on promoting economic growth even if it calls for adding further stimulus. However, his comments did little to alter market expectations that the first rise in interest rates will occur around middle of 2015, aiding the Pound in gaining against the majors. With yesterday’s CBI retail sales data surprising on the upside, the GfK consumer confidence survey later tonight will be eyed and could echo similar results.
Meanwhile, much market action today is expected to occur across the Atlantic. Today’s revised second quarter GDP and initial jobless claims data in the US will provide food for thought in evaluating the possibility of an early withdrawal of QE3.
Pound Sterling – UK Markets
Sterling bounced back against both the Euro and the US Dollar yesterday after the BoE Governor, Mark Carney’s comments failed to convince markets that borrowing rates will remain low for an extended period of time. In a move intended to encourage bank lending and boost growth, Mr Carney announced that liquidity rules will be relaxed for banks that met capital targets, further aiding the Pound against the majors. However, he did not rule out the possibility of the central bank resorting to further easing measures, if expectations of an interest rate hike undermined economic recovery.
Meanwhile, the Pound has moved higher against the Euro in today’s trading session following weak German economic data. Additionally, businesses in the UK seem more confident about the economy as shown by the just released Lloyds business barometer survey. Sterling could find further support with the GfK consumer confidence data late tonight expected to show an improvement in consumer sentiment for August, in sync with yesterday’s robust CBI retail sales report. Also, a slew of global economic releases and the latest series of events in Syria will keep investors on their toes throughout the day.
US Dollar – US Markets
Adding to recent signs that rising mortgage rates are beginning to adversely affect the US housing market, data released yesterday showed that demand for previously owned homes unexpectedly declined for July. Despite the dismal housing report, the US Dollar moved higher against the Euro, as demand for safe haven currencies remained intact amid rising tensions in the Middle East over a possible military strike by the US and its allies on Syria.
In today’s trading session, investors have their plate full in terms of important macro releases that could shed further light on the expected timing of a partial withdrawal of QE3. Most market attention will revolve around the revised second quarter GDP data later today, which is expected to show a faster pace of expansion than earlier estimated. This should provide a further boost to the greenback, as it will strengthen the case for tapering bond purchases. Market participants will also keep an eye on initial jobless claims and personal consumption data in the US later today for further hints to the condition of the labour market and consumer spending. Apart from macro indicators, speeches by a few Fed officials and escalating tensions in Syria will influence trading sentiment in today’s session.
Euro – European Markets
The single currency was on a weaker footing against the US Dollar yesterday despite the downbeat US housing sector report clouding prospects of the Fed tapering its QE3 programme next month. The weakness in the Euro was primarily due to the unexpectedly weak German consumer confidence data, which highlighted that fragility still persists in the Euro zone’s largest economy despite the recent string of upbeat economic data. To add to woes, the German labour market data earlier today revealed that the number of unemployed people in Germany surprisingly rose for August.
With the common currency trading lower against its major peers in today’s session, markets look forward to the German consumer price inflation data later today that is expected to show that price pressures in the economy eased for August. Across the Atlantic, a string of important macro data later today will be keenly watched for further direction to risk appetite. Also, events unfolding in Syria will have a bearing on investors’ sentiment in today’s trading session.
Other Currencies – Highlights
After gaining traction over the last couple of days, the Japanese Yen has weakened against most of its major peers this morning on the back of lacklustre July retail sales data, which showed a more than expected decline in sales in the world’s third largest economy. Demand for safe haven assets had pushed the Japanese Yen higher against the US Dollar yesterday amid concerns of an impending military strike on Syria by the US and its allies. Meanwhile, Yoshihisa Morimoto, a board member of the Bank of Japan, indicated earlier today that the Japanese economy is showing signs of positive cycles of output, income and spending.
Later today, the US labour market and GDP data will be keenly followed by market participants for further cues on the strength of the economic recovery. Meanwhile, a raft of crucial domestic economic data including manufacturing PMI, consumer price inflation, industrial production and unemployment rate will give an overall picture of the Japanese economy and is expected to sway market sentiment in tomorrow’s session.
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