Most of the central bankers across the globe want to move away from the ultra-loose monetary policy that has been adopted over the last decade to deal with the financial crisis. This was evident in yesterday’s minutes from the BoE and the US Fed’s latest policy meetings. However, some mixed economic data from both the nations has restricted these central banks from raising their benchmark interest rates. Nevertheless, investors will continue to monitor further economic data to gauge the actual state of recovery. Meanwhile, data just released indicated that retail sales in the UK grew less than expected for July.
Going forward, market attention has now shifted to the global central bankers’ conference in Jackson Hole commencing later today.
Pound Sterling – UK Markets
UK retail sales rose less than expected for July, thereby limiting gains in the Pound against both the US Dollar and the Euro. Meanwhile, another report has revealed that public sector net borrowing posted a deficit for July, thereby indicating an improving fiscal trend. With no major UK macro releases later in the session, markets will keep a close eye on a slew of US macro data along with the global central bankers’ conference commencing in Jackson Hole later today for further cues to risk appetite.
The BoE minutes released yesterday indicated that two policymakers, Martin Weale and Ian McCafferty, voted for an immediate hike in the key interest rate to 0.75%, although the rest of the policymakers decided to keep the key interest rate at record low levels. However, markets will continue to look for further cues following contrasting views shared by the BoE Governor recently over the timing of interest rate hikes. The recent set of some disappointing economic data in the UK, especially wage growth and inflation, continue to pour water on expectations of an earlier than expected interest rate hike.
US Dollar – US Markets
The greenback continued to record gains against the Euro yesterday after the minutes of the latest US Fed policy meeting revealed that few members of the central bank believed that it would be appropriate to unwind the accommodative measures at an earlier than envisaged period. Yesterday’s upward trend in the US Dollar highlights that the latest FOMC minutes was accepted by markets as a hawkish signal. The focus now shifts to the global central bankers’ conference in Jackson Hole starting today, where traders remain focused on the comments from the US Fed Chair scheduled on Friday, in order to gauge if Janet Yellen agrees with the view that the changing economic landscape in the US has elevated the prospects of an earlier hike in interest rates.
Economic releases scheduled in the US today consists of initial jobless claimants which is expected to drop for last week and the preliminary Markit manufacturing PMI reading which is expected to ease marginally for August. Meanwhile, the US Dollar remains supported against the majors this morning following weak macro data from the UK, Euro zone and China.
Euro – European Markets
After the recent slide, the Euro recouped some of its losses against the US Dollar this morning following upbeat German PMI data. Manufacturing and services activity in Germany expanded at a faster than expected for August, thereby easing some fears over the health of the economy. However, manufacturing PMI in France and Euro zone surprised markets on the downside. The mostly disappointing macroeconomic data across Europe lately continues to heighten concerns over an economic revival in the Euro bloc. Meanwhile, market attention has now shifted to the ECB President’s speech tomorrow at Jackson Hole for his view on the current policy stance.
The Euro dropped below 1.33 mark against the US Dollar in yesterday’s trading session after the FOMC minutes indicated that few policymakers were willing to abandon the Fed’s accommodative policy stance sooner than expected, if the economy continues to show promising signs. Additionally, data indicated that German producer prices continued to drop for July mainly due to a fall in energy prices, thereby further deepening the deflationary threat in the region.
Other Currencies – Highlights
The Kiwi Dollar lost ground against the greenback after the minutes of the latest Fed policy meeting released yesterday strengthened prospects of a sooner than expected interest rate hike in the US. Additionally, data released earlier today showed that New Zealand’s consumer morale deteriorated to a 10-month low in August. The weakness in consumer confidence could be attributed to higher interest rates and weak commodity and house prices. Another domestic survey showed that the number of job advertisements declined for July. This was a further setback to investors’ after the Reserve Bank of New Zealand lowered its two-year inflation outlook earlier this week. Additionally, the Kiwi Dollar is likely to remain under pressure after the pace of manufacturing activity in China slowed for August.
With no major domestic macroeconomic releases scheduled this week and the global central bankers’ conference in Jackson Hole starting from today, the Kiwi Dollar will take direction from comments of eminent speakers at the event. Markets will also keep a tab on today’s US Markit manufacturing PMI data for further direction to the Kiwi Dollar.
Dollar Weakens as Fed Turns Dovish, Eyes on BoE
Euro Plummets as Draghi Opens Door For Rate Cuts
British Pound Stays Under Pressure Ahead of Tuesday's Vote