BoE Monetary Policy Meeting Today

With a light global economic calendar today, markets will keenly eye today’s BoE monetary policy meeting for further direction, although the central bank is widely expected to maintain its current policy stance. Despite signs that economic growth remains on track, the future course of interest rates in the UK remains uncertain, as market participants believe that slow inflation and wage growth could dissuade policymakers from introducing an earlier than expected interest rate hike. Today’s trade data in the UK has been weak, limiting the upside in Sterling against the majors. Across the Atlantic, yesterday’s much-awaited FOMC minutes offered no major clarity on the future path of interest rates in the world’s largest economy.

Pound Sterling – UK Markets

The BoE monetary policy meeting is likely to remain a low key affair as the MPC members are unlikely to alter their current policy stance. However, investors will await the minutes of today’s meeting to gauge policymakers’ view over the future course of interest rates in the UK. Meanwhile, the Pound is trading on a weaker footing against its major counterparts this morning, as data just released showed that trade deficit in Britain unexpectedly widened for May. For the day ahead, cues from the US will be keenly eyed, given its potential to alter the overall market sentiment. Moreover, with no crucial domestic releases from the UK tomorrow, it remains to be seen if Sterling holds the 1.71 mark against the US Dollar during this week’s trading sessions. The Pound edged marginally higher against the US Dollar in yesterday’s trading session following the minutes of the latest FOMC meeting. Meanwhile, the incoming BoE Deputy Governor, Nemat Shafik, in her testimony before the Treasury Committee indicated that the first rate hike since 2007 is approaching closer as the domestic economic recovery remains on track.

US Dollar – US Markets

The US Dollar dropped against the majors yesterday, as the minutes of the latest FOMC meeting offered no clarity over the probable timing of an interest rate hike in the US. Meanwhile, the minutes indicated that the central bank would conclude its stimulus programme by October 2014, further demonstrating that economic recovery in the US remains on track following a major setback witnessed initially this year. The minutes also indicated that the central bank’s policymakers discussed means to exit the loose tools that were used during the financial crisis in the previous decade. Although uncertainty over the future course of interest rates in the US hurt the greenback yesterday, the recent strong labour market data could possibly prompt the Fed policymakers to revisit their stance on interest rates during the period ahead. Meanwhile, the greenback registered marginal gains against high yield currencies today, as soft economic data from China elevated fears about growth in the Chinese economy. Going forward, apart from the weekly jobless claims figures, the Fed Vice-Chairman, Stanley Fischer’s speech will attract market attention.

Euro – European Markets

With the latest indicators from Germany hinting at fresh headwinds, a similar trend was evident from today’s economic releases from France. Data showed that industrial output in France declined unexpectedly for May, while inflation eased to its lowest level since 2009, thereby offering further evidence that Europe’s second largest economy has failed to unshackle the weakness that has been plaguing the French economy in recent years. It remains to be seen if the recent policy measures from the ECB offers support to the region’s economy in the upcoming months. Separately, today’s ECB monthly report continued to echo dovish views as those stated by various central bank officials lately. The Euro rose against the majors yesterday following the release of the FOMC minutes. Meanwhile, the ECB Chief, Mario Draghi, stated that the Euro bloc needs more structural reforms and better monetary integration to bring out the region of its current weak economic recovery. Other ECB policymakers also raised similar issues, while reiterating that the central bank stood ready to take further easing measures, if needed.

Other Currencies – Highlights

The Japanese Yen continued to trade on a firmer footing against the greenback this morning after the minutes from the latest US Fed policy meeting failed to outline a timeline for raising interest rates, while indicating that the central bank might wind down its bond purchases by October 2014. However, mixed domestic economic reports have limited further gains in the Japanese Yen against the majors. Data showed that machinery orders in Japan declined unexpectedly for May, thereby casting doubts over the investment scenario in the nation. However, another report indicated that the Japanese consumer confidence rose more than expected for June. With no major domestic macroeconomic reports scheduled this week, markets will keep a close watch on today’s US initial jobless claims report to gauge the health of the US labour market. Additionally, speeches from some Fed policymakers today and tomorrow will keep investors in the Japanese Yen on their toes.