Mark Carney in Spotlight

Yesterday’s better than expected labour market data added to signs that the UK economic recovery is gaining momentum and fuelled speculation of an earlier than projected interest rate hike by the BoE. With Mark Carney’s first testimony to the Treasury Committee scheduled later today, markets are expecting cues from the Governor regarding future policy moves, especially in the aftermath of a steadily improving domestic economic environment. Later today, initial jobless claims data in the US will grab maximum market attention for hints on the near term Fed policy stance. Additionally, Euro zone industrial production data and a speech by the ECB President will be eyed by market participants for further direction.

Pound Sterling – UK Markets

Following the release of a better than forecast British labour market report yesterday, the Pound rose to a seven-month high and breached the 1.58 mark against the US Dollar. While the number of people claiming jobless benefits in the UK fell more than expected, the unemployment rate, a barometer by which the BoE has based its future policy decisions, also surprisingly fell to the lowest level since late last year. Sterling also moved higher against the single currency, as the buoyant employment report boosted market speculation that the BoE will raise interest rates sooner than expected. However, the BoE policymaker, David Miles, while supporting Mark Carney’s guidance policy, stated that reaching the 7% unemployment threshold swiftly may be more easily said than done. Against this backdrop, the BoE Governor, Mark Carney’s testimony to the Treasury Committee later today will be closely tracked for further insights into the BoE’s policy stance going forward. The Pound has held on to yesterday’s gains this morning and is trading close to the 1.58 mark against the US Dollar. Apart from the testimony, initial jobless claims data in the US and a speech by the ECB President are expected to influence market sentiment today.

US Dollar – US Markets

“Risk-on” sentiment continued to prevail in markets yesterday, dragging the US Dollar lower against its major peers, as recent mixed US economic data, most notably last week’s dismal non-farm payrolls report, has created doubts among investors as to whether the Fed will begin tapering its $85 billion monthly asset purchase programme at its policy meeting next week. With this recent uncertainty, the New York Fed President, William Dudley’s speech later today will be eyed for any hints on the Fed strategy going forward. In a further boost to risk appetite, the US President put an imminent military strike on Syria on hold after Syria agreed to place its chemical weapons under international control, thereby easing tensions in the Middle East. Against this backdrop, investors will eye a meeting between US and Russia later today which is focused on arriving at a diplomatic solution on Syria. Meanwhile, the greenback is trading in a tight range against the majors this morning, as markets await initial jobless claims data later today ahead of the crucial FOMC meeting next week. Any negative surprises on the labour market front will tilt the scales in favour of the Fed continuing with QE3 in the near term.

Euro – European Markets

The common currency strengthened against the greenback yesterday, as prospects of a US military strike against Syria faded following the US President’s toned down stance on the issue, underpinning demand for high yield currencies. However, the upside was limited, as an ECB policymaker opined that the region’s economic recovery is not strong enough to warrant an end to the region’s loose monetary policy. Furthermore, the European Commission President, Jose Barroso, has indicated that although economic recovery is in sight, the implementation of banking reforms is the need of the hour in order to boost the region’s ailing financial sector. Meanwhile, the ECB monthly report has revealed that while the central bank remains moderately optimistic with regards to the bloc’s economic recovery, more efforts will be needed to achieve sustained growth. Going forward, the ECB President, Mario Draghi’s speech later today will be eyed to ascertain if the central bank will resort to further rate cuts. Additionally, today’s industrial production data is also expected to influence trading sentiment in the Euro.

Other Currencies – Highlights

The Australian Dollar’s recent uptrend against its peers following buoyant Chinese economic data was curtailed earlier today, after the release of dismal domestic labour market report. While payrolls dropped unexpectedly, the unemployment rate climbed to a four-year high for August, highlighting the nation’s problems in recovering from the fading mining boom. The dismal labour market data was in stark contrast to yesterday’s upbeat consumer confidence data. With most of the economic releases for the week already out, market participants are looking ahead to next week’s minutes of the RBA’s latest policy meeting for further insights into the central bank’s outlook for economic growth. Additionally, a string of economic releases from both sides of the Atlantic, especially the highly anticipated Fed policy meeting, will sway market sentiment next week.