In the light of mixed signals from the BoE Chief, Mark Carney, about the prospects of an interest rate hike in the UK, today’s minutes of the latest policy meeting has confounded traders as it displayed differences among BoE policymakers’ over a rate hike. With two members of the MPC voting in favour of higher interest rates in the UK, it remains to be seen if others in the committee echo similar views in the days ahead. Following the minutes, Sterling pared some of yesterday’s losses against the majors.
Across the Atlantic, markets will keep a close watch on today’s FOMC minutes to gauge the probable timeline for raising interest rates, especially considering some encouraging economic data lately.
Pound Sterling – UK Markets
The Pound climbed against the majors this morning following the release of the BoE minutes. Although the majority of policymakers voted to hold the benchmark interest rate at 0.50%, there were two officials, Martin Weale and Ian McCafferty, who voted in favour of a 0.25% hike in interest rate at the last policy meeting. However, the central bank’s decision to hold its policy stance unchanged at current levels seems to be correct, as yesterday’s data indicated that consumer price inflation in the nation eased more than expected and remained below the BoE’s 2% target rate. Markets will continue to scrutinise further domestic economic data to gauge the probable path of monetary policy, especially considering the contrasting views offered by the BoE Governor recently. Later in the session, the FOMC minutes along with tomorrow’s UK retail sales report are likely to keep investors interested.
Meanwhile, the Pound dropped against the greenback and the Euro in yesterday’s trading session following the dismal UK inflation report. The Pound-US Dollar pair suffered further losses after the release of strong US housing data.
US Dollar – US Markets
The US Dollar strengthened against the majors yesterday after data showed a more than expected rise in housing starts and building permits for July. The upbeat housing data has pacified market concerns about recovery in the US housing market and further reinforced the belief that improving labour market prospects have altered the overall economic landscape. Meanwhile, US consumer price inflation eased for July, in line with market estimates.
The US Dollar has continued to nudge higher against most of its major peers this morning, as traders increased their bets in the greenback ahead of the release of the FOMC minutes. With the US Fed’s stimulus programme approaching its expected end in October 2014, investors will closely follow the minutes of the latest policy meeting for cues about the possibility of higher interest rates in the coming months. Markets will keep an eye on key developments on the economic front that are likely to shape views of policymakers, which currently remain diversified. Furthermore, traders will keep a tab on this week’s speech from the US Fed Chief, Janet Yellen, for further direction to risk appetite.
Euro – European Markets
The Euro-US Dollar pair is trading on a weaker footing and fell below the 1.33 mark this morning, as traders continued to seek exposure in the greenback. Data released earlier today showed that German producer prices unexpectedly fell for July, further confirming that deflationary threat is gaining a tighter grip over the common currency bloc. Considering a light domestic economic calendar this week, markets will keep an eye on tomorrow’s PMI numbers for the current month which is anticipated to shed some light on whether the Euro zone economy is recovering after the recent period of weakness. Additionally, the ECB Chief, Mario Draghi, is scheduled to speak at the global central bankers’ conference later this week, which will help traders to gauge the prospects of further monetary easing in the Euro bloc. Separately, with the situation in Eastern Europe remaining tense, next week’s meeting between the Russian and Ukrainian Presidents will be of significance to market participants.
The Euro gained ground against the Pound yesterday following the release of soft UK consumer price inflation data.
Other Currencies – Highlights
The Japanese Yen has continued to trade on a weaker footing against the greenback in today’s trading session following the release of yesterday’s upbeat US housing starts and building permits data. Additionally, data released overnight showed that trade deficit in Japan narrowed less than expected for July, as imports rose unexpectedly amid high demand for oil and gas. Meanwhile, Japanese exports rebounded sharply for July, strengthening hopes that strong growth in exports might offset the weakness witnessed in domestic spending.
Today’s FOMC minutes will attract considerable market attention, as it will help investors’ to gauge the timing of an interest rate hike in the world’s largest economy and provide further direction to the Japanese Yen against the majors. Markets will also keep a tab on tomorrow’s preliminary Nomura/JMMA report which is anticipated to show that the pace of manufacturing activity in Japan improved for August. Additionally, domestic inflation data scheduled next week could prove crucial for the Japanese Yen against its major peers.
European Currencies Struggle to Stage a Steady Recovery