BoE’s Inflation Report Due This Week

Given the strong pace of recovery in the UK labour market, this week’s labour market data will be keenly watched as traders try to ascertain the health of the nation’s job market. Focus will also be on the gauge showing the pace of growth in wages in the nation, as BoE officials have expressed their dissatisfaction over the pace of wage growth in the British economy. Additionally, the quarterly inflation report will be eyed for an updated forecast of economic growth. With no major economic releases across the globe today, market participants are expected to keep a close eye on events unfolding in the Ukraine and the Middle East for further direction to risk appetite. 

Pound Sterling – UK Markets

The Pound has recouped some of its losses from Friday’s trading session and nudged closer to the 1.68 mark against the US Dollar this morning. Meanwhile, market participants are expected to keep a close watch on the BoE’s inflation report later this week, amid uncertainty over the future course of monetary policy. Additionally, the BoE Governor, Mark Carney’s press conference following the release of the Quarterly Inflation report will also be closely watched for cues on the future movement of interest rates in the UK. As wage growth debate continues to weigh on the central bank’s decision over the future course of monetary action, this week’s labour market data will offer insights about the current state of affairs in the job market. Data released on Friday indicated that the UK trade deficit widened for June, mainly due to a drop in exports. Last month, the BoE Deputy Governor, Ben Broadbent, had stated that the current account deficit does not pose any risk to UK economic revival and opined that the pace of growth in the global economy might help strengthen the domestic economic recovery.

US Dollar – US Markets

The US Dollar is trading in a tight range against the majors this morning. Earlier today, the Federal Reserve Vice Chairman, Stanley Fischer, indicated that global economic recovery has been disappointing and that the long-run annual growth in the US may now be as low as 2 percent. With no major domestic macro releases scheduled today, markets will keep a close eye on unfolding events in Eastern Europe and the Middle East for further direction to risk appetite. Speeches from various US Fed Officials will also be followed during the week, to provide more insight into the US Fed’s monetary policy stance considering the mixed domestic data lately. Additionally, this week’s slew of domestic macro data, especially retail sales and industrial production will keep market participants interested. Economic data released on Friday in the US was mixed. While the preliminary non-farm productivity reading showed a sharp rebound, unit labour costs rose less than expected for the second quarter. The latter stoked concerns about the weak wage growth and weighed expectation of a sooner than expected hike in the key interest rate.

Euro – European Markets

The Euro rose against the majors in Friday’s trading session, despite data showing that the German trade surplus narrowed unexpectedly for June due to a sharp rebound in imports. Gains in the common currency were led by reports that Russia was set to take steps to reduce tensions with Ukraine. The Russian Defence Ministry indicated that it had completed military exercises near the Ukrainian border, leading to a rise in risk appetite. The Euro was also supported in Friday’s session by a rebound in the pace of French industrial activity for June. In a significant development over the weekend, Ukrainian separatists called for truce on Saturday after they were surrounded by government forces. With little on the domestic macro front today, the Euro is trading in a tight range against its major counterparts this morning. Moving ahead, the preliminary Euro zone GDP reading this week is expected to show that the region’s economic growth for the second quarter remained almost flat. Additionally, markets will eye the consumer inflation readings across Europe for July, to gauge the deflationary prospects hovering over the common currency bloc.

Other Currencies – Highlights

The Canadian Dollar lost ground against the greenback in Friday’s trading session following the release of downbeat Canadian labour market report which showed that the number of job additions were significantly lower than expected for July. Although the headline unemployment rate in the nation declined unexpectedly, the fall was mainly led by a drop in the nation’s participation rate. Additionally, the job addition numbers masked losses in full-time positions which were offset by an increase in part-time jobs. Key data scheduled for release in Canada today is the number of housing starts. A poor reading could further stoke investors’ concern towards prospects for a Canadian recovery in the second quarter. Meanwhile, in the absence of any other major domestic macro triggers this week, the retail sales data and the preliminary Reuters/Michigan consumer morale survey in the US would be crucial for trading trends in the Canadian Dollar against the majors.