The just released report has indicated that consumer price inflation in the UK eased more than expected for July, thereby dampening prospects of an interest rate hike in 2014 and weighing heavily on Sterling’s performance against the majors. However, in the wake of hawkish comments from the BoE Governor over the weekend, this week’s BoE minutes will generate significant interest in order to gauge if any of the MPC members voted in favour of hiking interest rates.
Going forward today, risk sentiment is likely to be influenced by US inflation numbers which is likely to provide clarity on whether the latest price trends from the economy could prompt influential policymakers in the Fed to alter their view on the future course of monetary policy.
Pound Sterling – UK Markets
The just released data has showed that UK consumer price inflation eased for July, thereby giving some room to BoE policymakers to keep the central bank’s accommodative policy measures intact for some more time. The weaker than expected inflation data has led Sterling to post losses against its major counterparts this morning. Additionally, data released by ONS indicated that house prices in the UK surprisingly dropped for July, thereby pointing towards some cooling in the domestic housing market. Going forward today, inflation and housing market data in the US will keep investors in the Pound-US Dollar pair on their toes, considering its potential to alter risk sentiment in the upcoming trading session. Furthermore, markets will keenly watch tomorrow’s minutes from the latest BoE policy meeting to gauge any signs of consensus among policymakers for a rate hike, especially in the wake of recent contrasting comments from the BoE Governor over the timing of an interest rate hike.
With no major economic releases at home, the Pound remained in a tight range against the US Dollar in yesterday’s trading session.
US Dollar – US Markets
Upbeat US homebuilder confidence data led the US Dollar to nudge higher against the common currency in yesterday’s trading session. Data indicated that homebuilder sentiment rose for August to its highest level since January 2014, mainly helped by improving domestic labour market. In this context, today’s housing starts and building permits data will be keenly eyed to gauge if rising homebuilder sentiment and falling mortgage rates are contributing to the revival of the housing market.
Apart from housing market data, today’s US consumer price inflation data will be keenly eyed which is likely to show an easing trend for July, although it continues to remain near the Fed’s 2% target. Meanwhile, the greenback continues to trade on a firmer footing against most of its major counterparts this morning. In an attempt to get a precise timing for interest rate hikes in the US, markets will keep a close watch on comments from Fed officials at the global central bankers’ conference in Jackson Hole and the minutes of the Fed’s latest policy meeting scheduled later this week.
Euro – European Markets
The Euro dropped against the majors yesterday. Data released yesterday showed that the seasonally adjusted trade surplus in the Euro zone narrowed for June. In the coming months, trade balance figures from the Euro zone will attract market attention, as export growth could be capped after recent sanctions by Russia on agricultural imports from the Euro zone come into effect. Meanwhile, the meeting between the Russian and Ukrainian foreign ministers showed signs of an improving diplomatic relationship, although tensions still prevail as officials failed to reach an agreement on a ceasefire in the conflict stricken areas.
In absence of domestic macro data, the Euro is trading in a tight range against the US Dollar this morning. Investors will keep a tab on a speech from the ECB Chief, Mario Draghi, in the week ahead to verify if the central bank President plans to take further monetary easing measures as economic growth in the Euro bloc remained stagnant for the second quarter. Additionally, manufacturing and services PMI numbers across key European nations later this week is expected to provide hints on the state of affairs in the private sector during the third quarter.
Other Currencies – Highlights
The Aussie Dollar is trading on a firmer footing in today’s trading session as investors took positively the encouraging outcome of the reconciliation meeting between the Russian and the Ukrainian foreign ministers. Meanwhile, the minutes of the latest RBA policy meeting released earlier today revealed that domestic inflationary pressure is likely to remain weak for the coming months due to spare capacity in the labour market and the recent abolition of the carbon tax. The minutes further indicated that sluggish growth in Australia’s trading partner economies and a slowdown in the mining sector could weigh on the nation’s GDP growth in the coming quarters.
Markets will keep a tab on today’s speech from the RBA Governor, Glenn Stevens, for hints about the central bank’s next move on the benchmark interest rate. Furthermore, crucial economic releases scheduled in the US, including today’s consumer price inflation report along with this week’s FOMC minutes and the preliminary Markit manufacturing PMI data, will provide further direction to risk appetite.