BoE Governor’s Speech in Focus

Yesterday’s robust UK labour market report showed that recovery in the nation remains steady. With the encouraging data, focus has now shifted to the future monetary stance and the probable timing of an interest rate hike. Meanwhile, investors will look forward to the BoE Governor, Mark Carney’s speech later today for further direction. Across the Atlantic, today’s US retail sales report might show an improvement for May from the previous month’s unexpected slowdown. In the wake of mostly weak industrial output reports from European economies recently, today’s Euro zone industrial production data will grab market attention.

Pound Sterling – UK Markets

The Pound advanced against its major peers yesterday after data indicated that the domestic labour market recovery gathered pace as an increase in the number of people employed led the unemployment rate to drop to its lowest level since January 2009 for the three months ended April. The recent upbeat numbers, along with yesterday’s labour market data, has raised questions over the amount of slack remaining in the nation. However, market participants remain in a dilemma amid a standoff between BoE policymakers as few officials support an interest rate hike soon, while others have an unchanged outlook towards the current monetary policy as the rate of wage increases takes a hit. The recent spate of housing sector data revealed that house prices continued to remain high and a BoE policymaker, Ben Broadbent, echoed a similar tone. The comments have raised concerns that even the tight lending norms in the sector might prove insufficient to handle the overheating UK housing market. Meanwhile, the Pound is trading higher against its major counterparts this morning. Later today, investors await comments from the BoE Governor, Mark Carney and the Chancellor of the Exchequer, George Osborne, for further direction.

US Dollar – US Markets

The greenback is trading in a tight range against the common currency in today’s trading session. Today’s US retail sales report will be in focus and is likely to show an increase for May, thereby suggesting that last month’s unexpected slowdown might be a temporary setback. In the wake of an improving US labour market, especially after last week’s non-farm payrolls report, today’s initial jobless claims data will attract market attention and is likely to show a similar trend. In the absence of decisive domestic triggers yesterday, the strong UK labour market report stole the limelight, leading the greenback to suffer losses against the Pound. However, market speculation that Fed policymakers might hike interest rates sooner than expected in the wake of mostly upbeat economic releases in the US recently led the US Dollar to limit further losses against Sterling. Against this backdrop, investors will remain wary ahead of the US central bank’s monetary policy meeting scheduled next week for further direction to risk appetite.

Euro – European Markets

Dovish comments from ECB officials and encouraging UK labour market data led the Euro to drop to its lowest level in a year against the Pound yesterday. Most of the ECB officials shared similar views that the central bank might unveil additional stimulus, if Euro zone inflation and recovery worsens further. However, Andreas Dombret, the Bundesbank Executive board member, stated that the measures introduced last week were sufficient and its impact should be fully gauged before unveiling further easing measures. Meanwhile, the German Chancellor, Angela Merkel, indicated that more structural reforms might be introduced to address the crisis and boost recovery in the Euro bloc. The Euro has continued its downward trend against the Pound this morning. Data released earlier today indicated that inflation in France remained unchanged for May, thereby shifting market focus on to tomorrow’s inflation reports from other European economies to gauge inflationary trends in the region. Also, the ECB in its monthly report reiterated that risks surrounding the economic outlook for the Euro zone continue to be on the downside. Going forward, today’s Euro zone industrial output data is expected to show a rebound for April.

Other Currencies – Highlights

The New Zealand Dollar is trading sharply higher against the greenback this morning after the Reserve Bank of New Zealand, along expected lines, lifted its benchmark interest rate for the third time this year, to 3.25%. Further, the central bank indicated that interest rates need to be hiked as strong economic growth in the nation is expected to underpin inflationary pressures. However, the RBNZ Governor, Graeme Wheeler, stated that the speed and extent of rise in the official cash rate would depend on future economic and financial data, and its implications on inflation. Separately, the central bank lowered its inflation forecast to 1.7% for the current quarter, less than 2% expected earlier, thereby providing scope to pause the tightening of its monetary policy in the coming months. With no other major macroeconomic releases from New Zealand this week, markets will look forward to today’s US retail sales report along with tomorrow’s Reuters/Michigan consumer confidence data for further direction.