BoE and ECB Policy Meetings Eyed

Yesterday’s weak industrial production numbers, coupled with a slowdown in NIESR economic growth for three months ended July, have dented hopes of a steady growth in the nation. Going forward today, markets will keep a tab on the BoE monetary policy meeting outcome, although the central bank is likely to keep its stance unchanged in the wake of subdued inflation and wage growth, along with uncertainty surrounding the health of the nation’s housing market. Against the backdrop of dismal economic reports across Europe, investors will monitor the ECB Chief’s post-meeting conference for cues to the region’s growth outlook and whether the central bank plans to adopt further stimulus measures to boost recovery in the Euro bloc.

Pound Sterling – UK Markets

Most of the macro data released during the second quarter pointed towards a steady recovery in the UK economy, as did the recently released flash GDP data. However, hopes of a similar trend going forward received a blow yesterday after the NIESR GDP report indicated that growth slowed for three months ended July. Additionally, domestic industrial and manufacturing output data disappointed investors, raising concerns that the strong value of Sterling and ongoing woes in the European region might derail the UK recovery. Rising house prices continue to remain a concern as it raises questions over the impact of measures unveiled earlier to curb the overheating sector. Meanwhile, the Pound is trading in a tight range against the majors this morning. Later in the session today, markets will keep a close watch on the BoE policy meeting outcome, although the central bank is unlikely to change its current policy stance. However, it is widely expected that policymakers be split over the timing of interest rate hikes. The exact state of affairs should be clear after two weeks when the central bank releases the minutes of today’s policy meeting.

US Dollar – US Markets

The US Dollar continued to trade on a firmer footing against the majors yesterday following this week’s encouraging US macro data, ongoing concerns in Eastern Europe and uninspiring economic data from Europe. Data released yesterday indicated that US trade deficit narrowed more than expected for June due to a drop in imports. Furthermore, weak German factory orders data and an unexpected contraction in Italian GDP for the second quarter raised concerns over the recovery prospects in the Euro bloc region. Additionally, the greenback advanced against the Pound following dismal UK industrial production data, spiraling house prices in the nation and after the NIESR GDP estimate revealed a slower pace of growth for three months ended July. In today’s trading session, the greenback is range bound against the majors ahead of key European central bank policy outcomes scheduled later today. Additionally, with last week’s disappointing non-farm payrolls report, markets will keep a close watch on today’s weekly jobless claims data to ascertain the current trend in the US labour market.

Euro – European Markets

Macro data released yesterday in Europe disappointed markets, with German factory orders dropping unexpectedly along with a surprise contraction in Italian GDP. The weak economic data has raised calls for additional stimulus measures in the currency bloc, especially in the wake of comments from the ECB President over the possibility of further easing, if current stimulus fails to boost recovery. Geopolitical tensions continue to weigh on the growth prospects of Germany as evident by today’s data indicating that industrial output rebounded less than expected for June. However, reaction in the Euro-US Dollar pair was subdued this morning, as investors preferred to remain on the sidelines ahead of the ECB’s policy outcome. The central bank is unlikely to change its current stance, although the recent weak economic data in the region might prompt the central bank to embrace further easing measures going forward. Market attention will also remain focused on the ECB President’s post-meeting conference for further cues to the region’s growth outlook. Separately, investors will keep a watch on events unfolding in Ukraine, especially after Russia announced a ban on imports from the EU and the US.

Other Currencies – Highlights

The Aussie Dollar lost ground against the greenback this morning following the release of a downbeat Australian labour market report, which showed that the unemployment rate rose unexpectedly to a 12-year high for July. Although full-time employment increased, a sharp decline in part-time employment resulted in the total number of employed people dropping surprisingly for July. Additionally, the RBA Governor, Glenn Stevens, indicated that weakness in the labour market is evident along with a weak wage growth. He further indicated that investment intentions are improving in some sectors which could assist the domestic recovery, however, investors seek more signs of improvement in domestic confidence. Moreover, the RBA’s quarterly statement on monetary policy scheduled tomorrow will provide further insights into the prospects of a broad-based recovery in the nation. Also, trade and consumer price inflation data in China scheduled in the upcoming trading sessions will prove crucial for the Australian Dollar against the majors.