An Action Packed Day

The Bank of Japan has set the tone for today’s central bank meetings in Europe by keeping its policy stance unaltered. The BoE and the ECB are likely to follow suit, given the recent spate of positive economic data. However, unanticipated comments at the ECB Chief’s post-meeting press conference and any accompanying policy statement by the BoE could sway market sentiment in today’s session. This month’s Fed meeting remains a critical event for currency markets given the influence of US labour market releases scheduled this week, including today’s ADP employment and jobless claims data. Additionally, the G20 summit commencing today will gain market interest, especially considering the divergent stand of the US and Russia on attacking Syria.

Pound Sterling – UK Markets

The Pound breached the 1.56 mark against the US Dollar yesterday following the release of services PMI data for August, which beat market forecasts and rose to the highest level since December 2006. The surprisingly faster pace of expansion in Britain’s dominant services sector boosted demand for Sterling, which climbed to a three month high against the single currency yesterday. The recent PMIs in the UK have confirmed that recovery in the British economy is more entrenched, as it is contributed to by different sectors of the economy. In today’s trading session, the Pound is trading in a tight range against the greenback ahead of the BoE policy meeting later today. With the recent macro data suggesting that the UK economic recovery is gathering steam, policymakers are expected to maintain status quo on the current asset purchases target and interest rates. Mark Carney, the BoE Governor, had earlier pledged to keep monetary policy accommodative as long as the unemployment rate exceeded 7%. It remains to be seen whether the central bank will reinforce its forward guidance.

US Dollar – US Markets

Largely upbeat economic data across the globe boosted demand for high yield currencies, thereby leading the US Dollar to weaken against a majority of its peers yesterday. Moreover, the Beige Book survey indicated that, despite a rise in consumer spending, the US continued to grow only at a “modest to moderate” pace since July 2013. However, slightly in contrast to the widely held view among Fed policymakers, the Minneapolis Fed President, Narayana Kocherlakota, opined that the central bank should increase its stimulus measures, considering its own forward guidance on the US economy. Meanwhile, the US Dollar has moved higher against the Euro in today’s trading session ahead of the ADP employment and initial jobless claims data later today, which are likely to act as pre-cursors to tomorrow’s non-farm payrolls data. The twin labour market indicators are expected to provide definite hints about the timing of the Fed scaling back its asset purchases programme. Apart from this, factory orders and the ISM non-manufacturing data, along with the central bank meetings in Europe, will keep investors on their toes today.

Euro – European Markets

Despite a mixed bag of economic releases in the Euro zone, the common currency climbed against the US Dollar yesterday. While retail sales in the Euro zone came in lower than expected, the revised annual second quarter GDP data came in above market expectations. The services sector activity across Europe also failed to provide a clear indication on the health of the sector, as some economies registered an uptick whilst others continued to languish at a slower than expected pace. The Euro seemed to be supported by the relatively weak US economic data and not so encouraging assessment of the US economy by the Fed’s Beige Book survey. In today’s trading session, the single currency has moved lower against the greenback ahead of the ECB’s policy meeting later in the day wherein the central bank President, Mario Draghi, is expected to keep monetary policy intact and present a dovish outlook of the economy regardless of encouraging signs of an economic recovery lately. Additionally, German factory orders and a slew of significant economic releases across the Atlantic will influence trading in the Euro in today’s trading session.

Other Currencies – Highlights

The Bank of Japan, at its policy meeting earlier today, kept its interest rates and asset purchases programme unchanged at current levels. The move to maintain the status quo was further supported, as the Bank of Japan raised its outlook on the economy and indicated that a moderate recovery is underway. The upgrade in outlook has also raised expectations of the Prime Minister, Shinzo Abe, going ahead with his planned sales tax hike next year. However, the Japanese Yen failed to respond positively to the upbeat assessment of the economy and is trading lower against the majors this morning. Going forward today, the central bank meetings in the UK and Euro zone and a raft of US economic data will influence market sentiment. Looking ahead, the Bank of Japan’s monthly economic report due tomorrow will be eyed for gauging the effectiveness of stimulus support to the economy. However, tomorrow’s US non-farm payroll numbers will undoubtedly grab maximum market attention, as investors brace themselves for the Fed’s policy meeting and a likely slowdown in the pace of QE3 later this month.