UK Inflation Remains Sticky

Most of the market’s attention seems to be focused on the two day US Fed monetary policy meeting commencing later today. In this context, today’s US consumer price inflation reading holds high relevance due to its influence on the Fed’s future policy stance. Meanwhile, the ZEW sentiment indices in Germany and the Euro zone will be keenly watched, especially after G8 leaders yesterday warned that economic prospects for the global economy remain weak. At home, data just released has indicated that consumer price inflation accelerated for May. Against the backdrop of a steady UK recovery and high inflation outlook, the BoE minutes due tomorrow will be keenly tracked for decoding the central bank’s future policy moves.

Pound Sterling – UK Markets

The Pound is hovering close to the 1.57 mark against the US Dollar in today’s trading session, as traders remain wary ahead of the two day US Fed monetary policy meeting commencing later today. Meanwhile, Sterling is trading under pressure against the Euro, as ZEW sentiment indices data from the Euro zone due later today is expected to show an improvement for June. On the domestic front, data just out has revealed that consumer price inflation in the UK climbed to 2.7% for May from 2.4% recorded in the previous month. This has shifted market focus to the BoE minutes of the last monetary policy meeting due tomorrow wherein policymakers are likely to reiterate their wait and watch approach amid signs of a steady economic recovery. However, with inflation hovering well above the central bank’s target rate, the minutes will be closely tracked to ascertain how the BoE plans to tackle future growth problems in the UK. With a light domestic economic calendar ahead today, Sterling is unlikely to have any independent moves against the majors and will track economic releases from the Euro zone and the US for further cues.

US Dollar – US Markets

The US Dollar is trading almost flat against the Pound in today’s trading session, owing to uncertainty surrounding the outcome of the Fed’s two day monetary policy meeting beginning later today. Yesterday’s Empire State survey revealed that manufacturing activity in the New York region unexpectedly moved into positive territory for June, suggesting that the nation’s manufacturing sector is showing signs of sustained recovery. Moreover, yesterday’s NAHB data reinforced the widely held belief that the recovery in the nation’s housing sector remains intact, as figures revealed that sentiment among homebuilders improved more than anticipated for June. Market players are expected to keep a tab on the housing starts and building permits data today for further insights on this front. However, with a few Fed officials opining that low inflation might limit the US Fed’s decision to scale back its stimulus measures, the consumer price inflation report due later today remains a key event on traders’ radar. Apart from domestic releases, the Euro zone ZEW sentiment indices due later today will have a bearing on risk appetite.

Euro – European Markets

An expected improvement in today’s ZEW sentiment indices in Germany and the Euro zone for June has helped the single currency to move higher against both the US Dollar and the Pound in today’s trading session. Yesterday’s trade balance report revealed that the trade surplus in the Euro zone economy narrowed for April, undermined by lower export demand. Amid ongoing turmoil in the Euro region, the ECB Chief Mario Draghi, reiterated that the central bank stands ready to move into unchartered waters, if circumstances warrant. In this context, traders will closely watch PMI releases from major European economies due later this week for gauging the central bank’s future policy moves. Moreover, the Spanish bill auctions due later today ahead of Thursday’s long term bond auctions will hold market interest. Meanwhile, trading sentiment in today’s trading session is likely to be influenced by developments taking place in the world’s largest economy.

Other Currencies – Highlights

The Australian Dollar has nudged lower against the greenback this morning after minutes of the Reserve Bank of Australia’s latest policy meeting revealed that the central bank stands ready to lower interest rates further, if warranted and if the fading mining boom negatively affects the Australian economy. The minutes also revealed that policymakers expect the Australian Dollar to witness further downward pressure as export prices ease. The dovish minutes of the policy meeting should keep a tight lid on the upside potential of the Australian Dollar against the majors in today’s trading session. With no major economic releases from Australia scheduled during this weekly trading session, apart from the Westpac leading index, the Australian Dollar is likely to monitor overseas events for further direction.