Central Bankers in Focus

Despite cooling inflationary pressures, the minutes of the BoE’s latest monetary policy meeting have revealed that MPC members voted 6-3 to keep the current size of asset purchases unchanged. Retail sales data just out has shown less than expected improvement for April, causing sterling to struggle. Meanwhile, developments from the US are likely to play a pivotal role in determining risk appetite in today’s session, as the US Fed Chief Ben Bernanke’s testimony before Parliament is likely to offer clues to the state of the US economy and the Fed’s future policy moves. The FOMC minutes will also be keenly dissected for any signs of withdrawal of the Fed’s stimulus.

Pound Sterling – UK Markets

The Pound nudged below the 1.52 mark against the US dollar in yesterday’s trading session as a bigger than expected drop in consumer inflation data led the market doves to speculate that cooling inflationary pressures have opened the door for further moves by the BoE. Inflation in the UK eased for April, for the first time in seven months on account of a fall in crude oil prices. The minutes of the BoE’s latest monetary policy meeting has indicated that the majority of MPC members voted to keep asset-purchases unchanged. Meanwhile, Sterling has lost further ground against both the USD and EUR after reports revealed that retail sales in the UK rebounded only marginally for April. Data has also indicated that public sector borrowings rose at a slower pace for April. In today’s session, markets are expected to ponder on CB industrial trends data for early insights into this month’s performance. Traders are expected to keep an eye on tomorrow’s revised UK first quarter GDP data, wherein confirmation of earlier numbers is expected.

US Dollar – US Markets

The US Dollar was mixed versus its counterparts yesterday as investors weighed up dovish comments from Fed officials with respect to winding down the central bank’s bond buying programme. New York Fed President, William Dudley and St. Louis Fed Chief, James Bullard, clarified that further economic progress was needed before the central bank could start altering its pace of asset purchases. The greenback is trading mixed versus most of the key currencies today, as investors eagerly await a testimony by Ben Bernanke before the Joint Economic Committee, to get a clearer picture of future policy stance. The US Dollar has lost ground against the single currency in today’s session as dovish comments have dampened speculation that the Fed’s ultra loose monetary policy might end soon. Apart from the Fed Chief’s testimony, the FOMC minutes of the latest monetary policy meeting also remains a significant event risk in today’s session and could also prove decisive in providing more clues to the Fed’s next step. Meanwhile, existing home sales data later today is expected to point to an improvement in the nation’s housing sector.

Euro – European Markets

Receding speculation that the US Fed would scale back its bond buying programme amid dovish comments by two Fed officials yesterday helped the single currency garner traction and move above the 1.29 mark against the greenback. Meanwhile, the Bundesbank report released yesterday offered some respite, as it expressed confidence that Germany, the largest economy in Europe, would improve markedly in the second quarter of 2013, a development that will prove decisive for the wider Euro zone economy. Against this backdrop, manufacturing and services PMI releases for May from Germany and other major European economies due tomorrow, will be keenly awaited for clues into the region’s growth. With data expected to show an improvement in activity, the single currency is likely to witness further support in tomorrow’s session. Meanwhile, data just out revealed that Euro zone current account surplus has widened much more than expectations for March. With little in store in terms of macro news today, events unfolding in the US are likely to act as major drivers for risk appetite in today’s trading session.

Other Currencies – Highlights

The Bank of Japan, in today’s monetary policy meeting, indicated that it plans to maintain its recent monetary stimulus measures in order to meet its inflation target of 2%. Following the monetary policy meeting, the Japanese Yen weakened against the US Dollar and the Euro amid prevalent hopes that the BoJ would continue to maintain an accommodative stance. Meanwhile, the Japanese trade deficit widened sharply for April, as the growth in the country’s import bill outpaced gains registered from exports. Although the recent GDP data showed signs of revival in the Japanese economy, the widening trade deficit further highlights the ramifications of unorthodox measures adopted by the Japanese central bank. For the week ahead, traders are likely to keep a close eye on the BoJ’s monthly economic report and the Governor speech for further clarity on the monetary policy measures that the central bank will pursue during the course of the year.