Central Bankers Centre Stage

Mixed cues offered by central bankers across the globe concerning their future monetary policy stance kept market participants on their toes throughout yesterday. The BoE acknowledged the strides made by the domestic labour market, bringing forward its 7% unemployment rate target and pointing towards an earlier than expected interest rate hike. However, the latest domestic retail sales report has proved to be a slight dampener to the overall upbeat market sentiment. In the US, Janet Yellen, who will take the reins at the Fed, has signaled the continuation of the Fed’s bond purchases until the US economic and labour market conditions showed further strength, while influential ECB policymakers defended the central bank’s move to slash interest rates last week.

Pound Sterling – UK Markets

Buoyed by the upbeat labour market data and the BoE quarterly inflation report, the Pound strengthened against its peers and soared above the 1.60 mark against the US Dollar yesterday. Acknowledging the improving domestic labour market conditions, the BoE, in its latest quarterly inflation report indicated that its 7% unemployment rate target is likely to be attained by 2015, against previous estimates of late 2016. The central bank also upgraded the nation’s growth forecast for 2013 and 2014 to 1.6% and 2.8%, respectively. The BoE Governor, Mark Carney, also opined that unemployment in the UK is falling at a faster than expected rate, thereby raising speculation of an earlier than expected hike in borrowing costs. Meanwhile, Sterling is trading on a weaker footing against the majors this morning following the release of a weak retail sales report, reflecting a rather gloomy domestic consumer sentiment amid falling wages. Later today, Sterling investors will keep a tab on a speech by MPC member David Miles and a raft of important global macro data for further direction.

US Dollar – US Markets

The US Dollar traded in dangerous territory against the common currency but weakened against Sterling yesterday, primarily following events unfolding across the Atlantic. The weakness in the greenback can also be attributed to the dovish remarks prepared for delivery by Janet Yellen to the US Senate Banking Committee today, pointing towards a still weak US economy and labour market and calling for further improvement before the central bank contemplates scaling back its monthly asset purchase programme. Meanwhile, the greenback has edged higher against the majors in today’s trading session as economic data from the other side of the Atlantic continues to weaken both the Euro and Sterling, underpinning demand for the greenback. Later today, the US Senate Banking Committee confirmation hearing for Janet Yellen’s nomination as the next Fed Chairman will gain maximum market attention. Additionally, the weekly US initial jobless claims numbers and speeches by FOMC policymakers will be closely followed by investors for further direction to the US Dollar against the majors.

Euro – European Markets

The common currency weakened against the Pound but managed to recover some of its early losses against the greenback yesterday. The ECB board member Peter Praet, stoked an early fall in the Euro against the US Dollar after he stated that the central bank will not shy away from adopting negative interest rates or purchase assets from banks if required in order to lift inflation closer to its 2% target. Elsewhere, Bundesbank President Jens Weidmann, defended the central bank’s 0.25% interest rate cut in its meeting last week stating that the move is aimed at boosting short term demand to spur inflation and growth. On the macro front, the weaker than expected Euro zone industrial output print for September disappointed investors. The Euro is trading lower against the greenback this morning after today’s ECB monthly report pointed towards a bleak outlook for the economy going forward. The GDP numbers from the Euro zone has dampen the tone in the Euro with the French economy unexpectedly contracting in the third quarter while Germany numbers coming in line with estimates. Investors will look forward to the Euro zone GDP report later today for further direction.

Other Currencies – Highlights

Disappointing domestic third quarter GDP data has dragged the Yen lower against its peers this morning. Although the GDP numbers came in a little above expectation, annualized growth rate halved to 1.9% adding to the case for the Bank of Japan to boost stimulus measures. However, growth is expected to accelerate in the final quarter of 2013 on the back of increased consumer spending. Following a weak GDP print, market participants have taken little note of the upbeat industrial production data released later in the day, even as the downfall in the Yen continues. Meanwhile, the Japanese finance minister, Taro Aso, has stated that foreign exchange intervention must be a part of monetary policy tools. With little on the domestic macro front, movement in the Yen will be driven by important news flows emanating from both sides of the Atlantic today.