UK Inflation Report Lifts Sterling

Data just released has provided some leeway to the BoE to raise interest rates, as consumer price inflation in the UK accelerated more than expected and moved closer to the central bank’s target rate, leading the Pound to move sharply higher against the majors. Meanwhile, markets will scrutinise today’s comments from BoE policymakers when they testify before the Treasury Select Committee. In the US, the Fed Chief’s semi-annual testimony will gain maximum attention, especially considering a significant improvement in the US labour market. Across Europe, the ECB Chief reiterated his earlier dovish comments while the IMF lowered its 2014 growth forecast on the Euro area. Against this backdrop, any negative surprises form today’s Euro zone and German ZEW sentiment reports cannot be ruled out.

Pound Sterling – UK Markets

The Pound has moved higher against its major counterparts in today’s trading session after data just released indicated that consumer price inflation in the UK rose more than expected to 1.9% for June. With inflation edging closer to the central bank’s 2% target rate, policymakers have some headroom to raise interest rates sooner than expected, if other economic indicators also follow suit. Going forward today, markets will keep a close watch on comments from the BoE Governor as he testifies before the Treasury Select Committee along with some other policymakers over the June Financial Stability Report. Additionally, tomorrow’s labour market report will gain attention and is likely to show a continued improvement in the domestic labour market, thereby raising questions over the amount of slack remaining in the economy. Furthermore, investors will keenly watch today’s US retail sales numbers and Janet Yellen’s semi-annual testimony, considering its potential to drive market sentiment in the upcoming trading session. With no major economic releases in the UK and the US yesterday, the Pound edged lower and breached the 1.71 mark against the US Dollar.

US Dollar – US Markets

The US Dollar is trading in a tight range against most of its major peers this morning, ahead of today’s retail sales figures and the US Fed Chief, Janet Yellen’s semi-annual testimony before the Senate Committee. Consumer spending pattern continued to show growth for four months in a row and today’s retail sales data is likely to further endorse this trend for June. With mostly upbeat economic data during the second quarter, today’s data will further strengthen market notion that economic recovery in the nation might rebound following a more than expected contraction in the nation’s growth during the first quarter. Additionally, with significant improvement in the US labour market and inflation edging closer to the central bank’s 2% target, today’s testimony from Janet Yellen will gain increased market attention for further cues on the central bank’s future policy stance. Furthermore, today’s New York Empire State manufacturing activity report will provide initial insights into the third quarter, although it is likely to show deterioration for July. In a subdued trading session yesterday, the US Dollar remained in a tight range against the Euro and moved higher against the Pound.

Euro – European Markets

The Euro advanced against most of its major counterparts in yesterday’s trading session. On expected lines, Euro zone industrial production dropped for May, thereby making evident that economic revival in the currency bloc continues to remain fragile and uneven. Additionally, while testifying before the European Parliament, Mario Draghi, the ECB Chief, reiterated that policymakers are committed to use “unconventional measures”, if required and indicated that the strong domestic currency might pose a risk for the Euro area recovery. Furthermore, the IMF lowered its 2014 GDP growth forecast on the currency bloc and stated that any further appreciation of the currency might easily push inflation into negative territory. Meanwhile, the single currency is trading in a tight range against the greenback this morning. Markets keenly await German ZEW sentiment indices which are likely to highlight further weakness in the region’s largest economy. Additionally, investors in the Euro-US Dollar pair will keep a close watch on US retail sales and the semi-annual testimony from the US Fed Chief, Janet Yellen, for further direction.

Other Currencies – Highlights

The Aussie Dollar is trading lower against the US Dollar this morning, as the minutes of the Reserve Bank of Australia’s latest monetary policy meeting revealed a dovish stance among policymakers. The minutes revealed concerns among policymakers about non-mining growth and the elevated value of the Australian Dollar. The minutes also indicated that consumer demand might remain subdued in the coming months. However, the minutes offered no new insights in terms of forward guidance. Going forward, investors will keep a close watch on next week’s inflation numbers, especially considering its importance in determining the future monetary policy stance. With no major decisive domestic triggers due today, this week’s business confidence report will be eyed for further direction. Additionally, today’s US retail sales numbers and the Fed Chief’s testimony will keep investors on their toes.