Low inflation big topic for Europe

The recent history shows that the former Fed Chairman, Ben Bernanke, during his tenure utilised the annual Jackson Hole symposium to deliver hints about initiatives that the Fed was likely to embrace in the future. With the recent hawkish FOMC minutes lifting the bar among traders in terms expectations from the current Fed Chief, it remains to be seen if Janet Yellen matches the standards set by her predecessor. In contrast, market participants will look for cues on the probability of potential policy easing by the ECB President, especially considering persistent low inflation in the Euro bloc. Additionally, the BoE Deputy Governor, Ben Broadbent’s speech scheduled tomorrow will attract increased market attention for hints on the BoE’s future course of action.

Pound Sterling – UK Markets

Data released yesterday revealed that annual retail sales in the nation grew at its slowest pace since November 2013 for July, thereby suggesting that consumer demand slowed during the start of the third quarter of 2014. Some of the recent disappointing domestic macro data, including yesterday’s retail sales report and this week’s weak inflation data, are likely to put a tight lid on expectations of a sooner than expected hike in interest rates. However, earlier this week, the BoE minutes revealed that two policymakers voted for an immediate rate hike while others sided loose policy stance citing concerns over the amount of slack in the economy which might derail the recovery in the nation. Meanwhile, the Pound failed to gain traction against the US Dollar in yesterday’s trading session. With a lack of economic releases in the UK today, market attention has now shifted to speeches from the Fed and the ECB Chief at the global bankers’ conference in Jackson Hole for further direction to risk appetite. Meanwhile, investors will keep a close watch on tomorrow’s speech by the BoE Deputy Governor, Ben Broadbent, for further cues on the central bank’s probable course of action going forward.

US Dollar – US Markets

The greenback is trading on a weaker footing against the majors this morning. Markets will scrutinise today’s speech from the US Fed Chief, Janet Yellen, at the global central bankers’ conference in Jackson Hole for signs related to the timing of a hike in the benchmark interest rate, especially considering the hawkish FOMC minutes released earlier this week. However, investors are likely to stay watchful, given uncertainty over the amount of slack in the US labour market and the reputation of the Fed Chief for being dovish. The greenback lost ground against its major peers in yesterday’s trading session despite data showing that the first time jobless beneficiaries in the US declined more than expected for the previous week and existing home sales grew at a faster pace for July. Additionally, the Markit preliminary manufacturing report showed that the pace of domestic industrial activity reached a multi-year high for August. With improvement in the nation’s manufacturing activity remaining firmly on track, markets expect a continuation of positive developments in the employment conditions.

Euro – European Markets

The common currency gained ground against the greenback in yesterday’s trading session following the release of preliminary German manufacturing and services PMI readings which dropped less than expected for August. Meanwhile, data released yesterday showed that consumer morale in the Euro zone deteriorated to its lowest level in six months for August. Furthermore, encouraging data released in the US, especially the number of first time jobless claimants and the Markit manufacturing PMI reading, limited gains in the Euro-US Dollar pair. With little on the domestic macro front today, the Euro is trading in a tight range against the majors this morning. Markets keenly eye the speech from the ECB Chief, Mario Draghi, to gauge if the central bank chief offers any hint to introduce another round of unconventional stimulus measures in the Euro bloc. Moreover, next week’s German and Euro zone consumer price inflation readings could prove crucial in providing further direction to the Euro against the majors.

Other Currencies – Highlights

The Canadian Dollar is trading in a tight range, albeit on a firmer footing against the greenback this morning, despite yesterday’s data showing an improving macroeconomic trend in the US and a slowdown in China’s manufacturing activity. Economic data scheduled in Canada later today is likely to show that consumer price inflation eased for July from its 29-month high reading recorded in the previous month due to a drop in gasoline and clothing prices. Additionally, Canadian retail sales growth for June is expected to reveal a slowdown, however, sales excluding automobiles is anticipated to improve. Separately, in a noteworthy development, Fitch reaffirmed Canada’s credit rating at “AAA” earlier this week. Moreover, markets will closely track speeches from eminent speakers, including the US Fed Chair, Janet Yellen, at the global central bankers’ conference in Jackson Hole later today for further direction to the Canadian Dollar against the majors.