BoE Minutes Offer No Surprise

On expected lines, the minutes of the latest BoE monetary policy meeting just out have offered little to cheer market participants. However, against the backdrop of a steady economic recovery in the nation, particularly the labour market, the central bank’s next policy meeting will be closely followed for hints about a possible shift in stance. Meanwhile, the UK government continued to borrow for March, albeit at a slower pace. In Europe, upbeat PMI numbers from Germany and the Euro zone eased fears about the state of affairs in the common currency union, while the Chinese manufacturing activity contracted for the fourth successive month for April. Across the Atlantic, today’s housing market and manufacturing activity reports are expected to show further improvement.

Pound Sterling – UK Markets

The Pound has failed to gain momentum against the single currency this morning, largely hurt by upbeat manufacturing and services PMI data from Germany and the Euro zone. The minutes of the latest BoE policy meeting offered no surprise as MPC members continued to present a united stand in maintaining the central bank’s current policy stance, as the unemployment rate was above the benchmark target at the time of the meeting. Against this backdrop, investors will keenly await the BoE’s next policy meeting scheduled in May for further insights into the probable timing of an interest rate hike. Also, data just released indicated that the UK government continued to borrow for March, although at a slower than expected pace. With little on the domestic economic front going forward, today’s CBI industrial trends survey will attract modest market attention for further insights into the state of the manufacturing sector for April. In the yesterday’s trading session, Sterling shrugged off better than expected US housing and regional manufacturing reports and traded on a firmer footing against the US Dollar.

US Dollar – US Markets

The US Dollar continued to trade close to yesterday’s lows against the Euro following upbeat PMI data from the Euro zone. However, continued contraction in Chinese manufacturing activity highlights that the global economy remains susceptible to shocks. The greenback had weakened against most of its major counterparts yesterday, as traders increased their exposure to riskier assets. On the housing front, data showed that existing home sales fell for March to the lowest level since July 2012, weighed down by rising prices, higher mortgage rates and lack of inventories. However, the numbers came in above market estimates, thereby offering a glimmer of hope that the domestic housing sector might stabilise in coming months. Against the backdrop of mostly positive regional manufacturing activity reports in the US, today’s nationwide Markit manufacturing activity report will be awaited which is likely to show a modest expansion for April. Also, new home sales data will be in focus for further insights into the pace of recovery in the US housing market.

Euro – European Markets

Data released earlier today indicated that manufacturing and services activity expanded at a faster than expected pace in Germany and the Euro zone for April, leading the common currency to trade higher against its major peers this morning. However, manufacturing and services activity data in France came in lower than market expectations, thereby suggesting that economic recovery in the region remains uneven and fragile. Against this backdrop, tomorrow’s German sentiment indices and the ECB President, Mario Draghi’s speech will be keenly watched to ascertain whether any shift in the ECB’s policy stance is required in the near future. The Euro limited its losses against its major counterparts yesterday after data indicated that the Euro area consumer confidence rose unexpectedly to its highest level in six and a half years for April, hinting that the Euro area’s tepid recovery might witness a turnaround in the coming months. Earlier yesterday, the ECB Executive Board member, Benoit Coeure, reiterated that the central bank has several instruments, including lowering key interest rates, which it might exercise if required to boost economic recovery in the region.

Other Currencies – Highlights

Australia’s annual consumer price inflation rose less than expected for the first quarter which led the Aussie Dollar to move sharply lower against the US Dollar this morning. Today’s data has renewed hopes that the RBA might hold its current accommodative policy stance, thus dampening earlier speculation that rising house prices and falling unemployment would prompt the central to raise the key rate from the current record low levels. Additionally, China’s HSBC manufacturing activity rose less than market expectations for April and remained in the contraction phase for the fifth consecutive month, thereby adding further pressure on the Aussie Dollar. With lack of domestic macro reports for the rest of the week, the Aussie Dollar is likely to move in accordance with the US economic data including today’s new home sales and manufacturing activity report and tomorrow’s durable goods orders data.