Carney Plays Mind Games

Over the weekend, the BoE Governor, Mark Carney, indicated that the central bank might opt to hike interest rates before an increase in workers’ pay, in contrast with last week’s comments where he linked the probability of an interest rate hike with a rise in the nation’s wages. Against this backdrop, markets await the minutes of the BoE’s latest policy meeting due later this week to gauge views of other policymakers. Additionally, an overnight report released by Rightmove showed a decline in UK house prices, thereby pointing towards some cooling in the domestic housing market. With largely mixed data across the Atlantic of late, markets will keep a close watch on further data to ascertain the state of recovery in the region.

Pound Sterling – UK Markets

In a statement that has confounded market participants the BoE Governor, Mark Carney, indicated yesterday that if central bank officials are confident of an improvement in real wages, they may raise key interest rates sooner than expected. This follows the dovish tone of the central bank chief last week which had dashed expectations of a near term hike in rates. This has led the Pound higher against its major counterparts this morning, though gains have been capped by data from Rightmove, released over the weekend, which indicated that house prices in the nation recorded its strongest fall since December 2012. Traders now await tomorrow’s domestic consumer inflation report to provide further cues to the timing of a rate hike. Meanwhile, Sterling showed little movement on Friday and traded range bound against the greenback, despite data showing that the revised UK GDP estimate for the second quarter had shown an improvement.

US Dollar – US Markets

The US Dollar is trading in a tight range against the majors this morning amid a lack of significant economic releases in the nation today. The only notable domestic economic update scheduled today is the NAHB housing market index. Weakness in the nation’s housing market has gained importance lately, especially after the US Fed Chair, Janet Yellen, repeatedly highlighted concerns about weak housing market data. Markets will additionally keep an eye on tomorrow’s consumer price inflation reading and the FOMC minutes in the week ahead to provide further direction to the greenback. Meanwhile, data released in the US on Friday was mixed. While the pace of industrial production improved more than expected for July due to stronger auto demand, gains in the greenback were capped by an unexpected deterioration in the Reuters/Michigan survey of consumer morale for August. Separately, the Minneapolis Fed President, Narayana Kocherlakota, indicated that there is still considerable slack in the nation’s labour market as many people aged between 25 to 54 are unemployed or working on a part time basis.

Euro – European Markets

With no major macro triggers in Europe on Friday, the Euro remained vulnerable against the majors amid fresh violence in Eastern Europe. Media reports indicated that Ukrainian forces had destroyed a Russian military convoy in Ukrainian territory. Against this backdrop, markets will keep a tab on a meeting between the Russian and Ukrainian foreign ministers wherein they are expected to chalk out a sustainable ceasefire plan between the two nations. Meanwhile, the Euro is trading in a tight range against the greenback this morning. With little on the domestic macro front today, investors will eye Euro zone trade balance which is expected to show that surplus in the region narrowed for June. Weak exports from the region, due to persistent geopolitical tensions in Eastern Europe and a slowdown in emerging economies, is likely to weigh on Euro zone trade data. Also, downbeat FDI data in China released earlier today soured investors’ mood toward high yield currencies. In the forthcoming week, the preliminary manufacturing and services PMI numbers across key European nations will provide further direction.

Other Currencies – Highlights

Statistics Canada corrected a major error in its revised jobs market report for July released on Friday. The revised data showed that the economy added 41.7K jobs for July, in sharp contrast to the previous week’s faulty job market report which showed mere 200 job additions. The report further revealed that the unemployment rate in the nation dropped to 7%, although a major gain in the employment numbers was mainly due to an increase in part-time jobs. As a result, investors kept their outlook unchanged towards the nation’s weak job market recovery. The Canadian Dollar gained ground against the greenback, however, gains were immediately reversed as markets digested the mixed Canadian employment report. In the absence of important domestic economic data this week, the Canadian Dollar will take direction from the US consumer price inflation report and the minutes of the latest Fed policy meeting scheduled later this week for further hints.