BoE Keeps Policy Stance Unchanged

Along expected lines, the BoE left its monetary policy stance unchanged at yesterday’s policy meeting. However, with speculation rife of an earlier than expected rise in UK interest rates, the focus now shifts to the minutes of yesterday’s meeting scheduled later this month and the inflation report due next month, to gauge the consensus view among policymakers. Also, next week’s inflation and labor market report will offer further clarity about Britain’s economic prospects. In Europe, investors remain on the edge amid fears over the financial health of Portugal’s largest listed bank. The latest event from Portugal highlights that the region’s banking system remains fragile. However, the single currency has staged a rebound today amid easing yields in peripheral bonds.

Pound Sterling – UK Markets

The BoE left its benchmark interest rate unchanged at 0.5%, while maintaining its asset purchase facility steady at £375 billion in its monetary policy meeting held yesterday. With no hints over the probable timeline for interest rate hikes, markets will now keep a tab on the BoE minutes to be released later this month. Meanwhile, the Pound dropped against the US Dollar yesterday after data indicated that trade deficit in the UK widened unexpectedly for May, thereby raising concerns that the strong domestic currency is undermining the nation’s efforts to increase exports. However, Sterling edged higher against the Euro amid concerns over the financial health of Portugal’s largest listed bank after its parent company missed a debt payment. With no major decisive domestic triggers today, speeches from various US Fed officials will be eyed, given its potential to alter risk sentiment going forward. In the forthcoming week, investors will keep a close eye on the UK consumer price inflation and labour market data to gauge the pace of improvement in the nation.

US Dollar – US Markets

Global equity markets were pressurised yesterday amid worries over the financial health of Portugal’s largest listed bank, leading the US Dollar to edge higher against the Euro yesterday. However, the Bank of Portugal later assured that it has enough capital reserves to deal with any defaults. Additionally, the US labour market seems to be on track for a steady recovery after data indicated that the number of people filing for first time jobless benefits fell unexpectedly last week. Furthermore, Esther George, a Fed official, indicated that the central bank should consider a hike in key interest rate this year as strong inflation might weigh on economic growth. Against this backdrop, today’s comments from few Fed officials will be keenly monitored for further direction. The US Dollar is trading marginally lower against the majors this morning. With little on the domestic macro front today, investors will keep a tab on the US budget report which is likely to show a surplus for June. In the forthcoming week, a slew of macroeconomic releases in the US, especially retail sales and Reuters/Michigan consumer confidence reports, will keep investors in the greenback on their toes.

Euro – European Markets

The Euro dropped against its major counterparts yesterday after the parent company of Portugal’s largest listed bank missed its interest payment for some of its short term debt, thereby raising concerns over the health of the Euro zone banking sector. The pressure on the single currency accentuated after yields in peripheral Euro zone bonds nudged higher. Although the Euro zone economies have displayed marked progress since the crisis that engulfed the region in 2012, the recent event is an alarming sign that underlying conditions still remains fragile. Meanwhile, the single currency has staged a marginal recovery from yesterday’s lows against its peers in today’s trading session following a rebound in European equity markets and easing yields in peripheral sovereign debt instruments. Among noteworthy comments from policymakers, the ECB Governing Council member, Ewald Nowotny, indicated that there is no urgency for additional stimulus measures in the near future, whereas another ECB official, Ignazio Visco, reiterated that the central bank is committed to use additional policy measures, including large scale asset purchases, if required.

Other Currencies – Highlights

The Canadian Dollar is trading on a firmer footing against the greenback this morning. Markets will keep a close watch on today’s labour market report in Canada which is likely to show that the unemployment rate remained unchanged while the number of employed people continued to rise for June. Additionally, speeches from few US Fed officials due later today will be monitored closely by investors, especially after yesterday’s hawkish comments from a Fed policymaker hinting at an interest rate hike later this year. With no major economic releases in Canada today apart from the domestic jobs data, markets will keep a close watch on the Bank of Canada’s policy meeting and inflation numbers scheduled next week for further direction to risk appetite.