Carney Speaks to Treasury Select Committee

The BoE Governor, Mark Carney’s testimony to the Treasury Select Committee is expected to grab market attention today for hints on inflation, the labour market and economic recovery, especially after the November Quarterly Inflation Report brought forward the central bank’s 7% unemployment target. Tomorrow’s revised estimate of the domestic third quarter GDP reading will also be on investors’ radar. Across the Atlantic, economic data continues to remain mixed with speculation that the Fed is closer to scaling back its bond buying programme in the coming months. Meanwhile, in the Euro zone, comments by ECB officials continue to fuel speculation of further loosening in the policy stance and the idea of negative deposit rates in the near term.

Pound Sterling – UK Markets

The unexpectedly weak domestic mortgage approvals report dragged the Pound lower against the majors yesterday, with Sterling slipping below the 1.62 mark against the greenback yesterday. Although recovery in the UK housing market continues to remain strong, the surprising decline in mortgage approvals for October, from a four-year high in September, dampened investor sentiment ahead of tomorrow’s revised third quarter GDP report. The weakness in the Pound can also be attributed to the surge in demand for the greenback following a multilateral accord struck by Iran to halt its nuclear programme. With little on the macro front, Sterling has continued to remain under pressure against the majors in today’s trading session. The BoE Governor, Mark Carney, testifies today at the inflation report hearing. Market participants will focus on the views expressed by the Governor and other MPC members for further insights on inflation and the British economic outlook. Furthermore, the US housing market and consumer confidence reports today will determine trading sentiment in the Pound-US Dollar pair going forward.

US Dollar – US Markets

The greenback gave up most of its early gains against the common currency yesterday, following the release of a disappointing pending home sales report that pointed towards a cooling-off in the US housing market. The reading, which fell to a ten-month low for October, is the fifth consecutive fall and highlights the effects of rising mortgage rates in the US. Additionally, demand for the US Dollar also remained subdued after a report showed slowdown in manufacturing activity in the Texas region. Meanwhile, the US Dollar had moved higher against its peers earlier in the day on reports that Iran had agreed to curb its nuclear programme. Meanwhile, the US Dollar is trading lower against its counterparts in today’s trading session ahead of the delayed report on building permits in the US, which are likely to be in sync with yesterday’s pending home sales. Separately, the consumer confidence report today will be closely scrutinised by investors to gauge the overall mood of the US consumer going into the holiday season.

Euro – European Markets

After weakening against the US Dollar in early trading yesterday, the single currency recouped most of its losses later in the day following a weak set of US economic data. ECB officials continue to advocate a dovish monetary policy stance with the latest being the ECB governing council member, Ardo Hansson, who opined that the central bank’s options on rate cuts are not fully exhausted and that the ECB is ready to make further cuts to interest rates and is “technically ready” for negative deposit rates. His comment was largely responsible for the early weakness in the Euro yesterday. The Euro also remained under pressure amid improved demand of the US Dollar in the wake of Iran’s agreement to put on hold its nuclear programme. Meanwhile, the common currency has continued to build on yesterday’s upward momentum against the greenback this morning, despite the lack of domestic macro data. Later today, important US economic data will prove crucial for the Euro against the greenback in the session ahead. Moving forward, the German consumer confidence data tomorrow will be closely followed by market participants for further hints on German economic progress.

Other Currencies – Highlights

After days of weakening, the Japanese Yen strengthened against the US Dollar this morning, despite the Bank of Japan’s latest monetary policy minutes revealing voices of dissent in the board over the central bank’s outlook towards the economy. Three of the nine board members warned of downside risks to the domestic economy during the central bank meeting last month. Some members also opined that there remains a high degree of uncertainty over mid to long-term inflation expectations, while stating that the nation’s economic growth is likely to stagnate considerably next year. With little on the domestic economic radar until Friday’s manufacturing PMI, consumer price inflation, industrial production and unemployment reports, news flows emanating from both sides of the Atlantic in the intervening period will drive movement in the Japanese Yen against the majors in the near term.