The Mark Carney Effect

Although a lower than expected rise in the UK consumer price inflation kept the prospect of additional stimulus measures alive yesterday, the minutes of the BoE’s latest policy meeting just out has revealed that all nine policymakers refrained from pressing the monetary gas pedal. To further strengthen the case, data released now has revealed that the labour market recovery remained intact for June. Trading sentiment going forward is inevitably to be influenced by the Fed Chief’s semi-annual testimony before Congress scheduled later today. With data released yesterday revealing that inflation moved closer to the Fed’s target, traders remain on the sidelines today.

Pound Sterling – UK Markets

The Pound witnessed some pressure in yesterday’s trading session after the BoE policymaker, Paul Fisher, indicated that that withdrawal of stimulus measures in the UK may be “years in the future”. However, Sterling has recouped its losses and is trading sharply higher against both the US Dollar and the Euro this morning, as data out just now has revealed that the number of people claiming jobless benefits declined more than expected for June. Meanwhile, the unemployment rate remained stable for May. Additionally, in the midst an improving economic landscape, the BoE minutes revealed that policymakers voted 9-0 to keep the target of bond purchase programme at £375 billion. Although the BoE Governor did not favour additional asset purchases, new policy measures at the next policy meeting cannot be ruled out under the reins of Mark Carney. Apart from key economic events in the US, traders keenly await UK retail sales data, due tomorrow, for gauging the strength of the nation’s consumer morale in the midst of rising price pressures, as evident from yesterday’s inflation figures.

US Dollar – US Markets

Despite inflation moving closer to the central bank’s target rate and US macro releases yesterday supporting the case of the US economic recovery gaining momentum, the greenback lost steam against the Euro and the Pound in yesterday’s trading session. Data showed that industrial production in the US recorded its largest rise in four months for June, while the NAHB housing index unexpectedly climbed for July. All eyes in today’s trading session will be on the Fed Chief, Ben Bernanke’s semi-annual testimony before Congress later today. Market participants believe that although the Fed Chairman might reiterate his stance that stimulus measures cannot last forever, he might indicate that the current accommodative policy stance is appropriate. However, the Kansas Fed Governor sounded hawkish as he opined that the central bank should systematically start scaling back its massive stimulus measures by this September and end it by mid 2014. Apart from Ben Bernanke’s testimony, the Fed’s Beige Book survey and housing starts data will gain modest market attention.

Euro – European Markets

The single currency breached the 1.31 mark against the US Dollar in yesterday’s trading session despite the German ZEW economic sentiment index showing an unexpected deterioration for July. However, some gains in the common currency can be attributed to the encouraging Euro zone economic sentiment data and hopes that Ben Bernanke might signal a continuation of QE3 in his semi-annual testimony before the Congress scheduled later today. Meanwhile, the situation in peripheral economies has once again caught investors on the wrong foot. In the midst of simmering political uncertainty in Spain and Portugal, Spain witnessed a rise in borrowing costs at its short term bill auctions held yesterday while the Bank of Portugal axed its 2014 GDP forecast. With no major domestic economic releases due today, the single currency is unlikely to have any independent moves and is expected to take cues from news flows emanating from the US for further direction to risk appetite.

Other Currencies – Highlights

The Japanese Yen is trading on a weaker footing against the US Dollar and the Euro in today’s trading session after the minutes of the Bank of Japan’s latest monetary policy meeting revealed that there was consensus among policymakers to continue with the present policy until it achieves an inflation target of 2%. However, board members differed in their views for curbing the excessive bond market volatility caused by the central bank’s massive stimulus measures. All industry activity and leading index due this Friday will be tracked for further clarity on the performance of the economy. On account of a light Japanese economic calendar ahead, global economic cues, especially from the US, will have a bearing on the Japanese Yen’s demand against the majors in today’s trading session.