Markets Searching For Direction

A relatively light global macro calendar awaits investors this morning, ahead of a hectic week which is expected to offer signals to future central bank policies in the UK and the US. While the respective minutes of the last BoE and FOMC meetings will be closely followed, a barrage of speeches by Fed policymakers, including Ben Bernanke, will also keep investors on their toes throughout the week. In the Euro zone, with officials hinting towards a zero interest rate regime, significant macroeconomic data during the week will give further hints on the state of affairs in the currency bloc. Elsewhere, China has announced a series of reforms that will alter the nation’s future economic and social landscape.

Pound Sterling – UK Markets

The Pound nudged closer to fresh intermediary highs against the US Dollar as BoE Governor, Mark Carney’s recent indication of a sooner than expected interest rate hike in the UK continued to sway momentum in favour of Sterling. The BoE minutes scheduled for release mid week will be scrutinised to gauge the views of other MPC members with regards to the policy that the central bank plans to adopt going forward. Despite seemingly weak Rightmove housing price data from the UK, the Pound continued to maintain its recent gains against the greenback, while it traded sideways against the Euro in today’s session. The agency however dispelled notions of an inflating price bubble in the UK housing market, citing strict lending criteria. Meanwhile, this week’s public finances data from Britain will also gain interest, as it will be closely deliberated by the Chancellor prior to his Autumn Statement in December. Moreover, public finances data is also likely to shed light on the boost from corporation tax payments and profits earned from the Royal Mail share sale in October. A host of global macro releases will also set the direction for the Pound against the majors in the week ahead.

US Dollar – US Markets

Dismal domestic economic data and the dovish comments made by the incoming Fed Chief, Janet Yellen in the previous week dragged the US Dollar lower against the majors on Friday. Industrial activity in the US slipped more than expected for October on the back of a decline in output at power plants and mining activity. Additionally, the New York Fed's Empire State manufacturing index showed that business conditions in the New York area surprisingly deteriorated for November, highlighting the headwinds facing the world's largest economy. Meanwhile, the greenback is trading on a mixed footing against the majors in today’s trading session, ahead of speeches by influential Fed policymakers later today. Views of permanent voter on monetary policy, William C. Dudley, could offer hints to the policy stance the Fed is likely to adopt after the current Governor’s term comes to an end, while comments from his peers, Charles Plosser and Narayana Kocherlakota, will also gain modest attention. In the week ahead, investors will keep a tab on the Fed policy minutes, along with the manufacturing PMI print, the consumer price inflation and retail sales reports for further direction to risk appetite.

Euro – European Markets

With domestic economic data failing to offer any upside surprises, the Euro tracked events from across the Atlantic and almost breached the 1.35 level against the US Dollar on Friday. The final reading of the Euro zone consumer price inflation showed no change from its earlier estimate. The dismal inflation numbers had prompted the ECB to reduce interest rates to record low levels in its meeting earlier in the month. In this context, Peter Praet, an ECB board member, hinted at the possibility of zero interest rates in future to spur inflation. The common currency is trading in a tight range against the majors in today’s session. Meanwhile, data just out has shown the Euro zone’s current account surplus narrowed for September. Trade balance numbers later today are expected to show an uptick. Furthermore, speeches by a few ECB officials today will keep markets interested. Later this week, a string of important domestic economic data will determine the Euro’s movement against the majors.

Other Currencies – Highlights

The New Zealand Dollar has continued its recent upward momentum against the greenback this morning as demand for the US Dollar remained subdued following Friday’s weak US economic data and Janet Yellen’s dovish comments on the Fed’s policy stance. Upbeat domestic economic data also continues to support the Kiwi Dollar against the majors. The overnight data on the services sector, which accounts for nearly two-thirds of the domestic economy, has shown that service sector activity in the nation climbed to a six-year high for October, on the back of a rise in new orders and sales. The upbeat services data follows last week’s positive manufacturing sector numbers and is expected to strengthen the RBNZ case to go ahead with its plan to raise interest rates next year. With a relatively light domestic economic calendar during the week, news flows emanating from both sides of the Atlantic will prove crucial for the New Zealand Dollar against the majors going forward.