UK Retail Sales Grows at a Slower Pace

The just released data indicated that UK retail sales growth slowed more than expected last month, thereby dampening optimism over the economic outlook and suggesting the need for accommodative policy measures for some more time. Although yesterday’s BoE minutes offered a hawkish tone for a sooner than anticipated interest rate hikes but it will only materialise if the economy continues to maintain an expected pace of growth. Across the Atlantic, on expected lines, the US Fed announced another round of tapering yesterday, although it maintained a dovish stance by indicating that interest rates might remain lower for a longer duration. In the aftermath of sluggish economic growth during the first quarter, the US Fed slashed its 2014 economic growth forecast.

Pound Sterling – UK Markets

The Pound edged lower yesterday despite the minutes from the BoE’s latest monetary policy meeting revealing a hawkish tone. The minutes indicated that the central bank policymakers voted unanimously to keep the key interest rate unchanged at 0.5% and maintain the asset purchase programme at £375 billion. However, the minutes also indicated that officials signaled a hike in interest rates before the end of 2014, provided the domestic economy sustains a certain expected pace of growth. Additionally, Martin Weale, the MPC member, echoed a similar tone the BoE Governor adopted last week that the central bank should start raising its interest rates soon if the bank plans to stick to its strategy for a gradual and limited increase in borrowing costs. However, the Pound reversed its course in the latter half after US Fed trimmed its 2014 economic growth and indicated that the interest rates will remain lower for some more time after it ends its stimulus measures. Meanwhile, the Pound has held on to its gains against the US dollar this morning despite data just out indicating that the annual retail sales in the nation slowed for May.

US Dollar – US Markets

On expected grounds, the US Fed continued to taper its monthly asset purchases by $10 billion and kept its benchmark interest rate unchanged at 0.25%. However, the FOMC slashed its 2014 growth forecast in the range of 2.1% to 2.3% from its previous estimate of 2.9% in March, mainly on the back of sluggish growth during the first quarter which led the US Dollar to drift lower against its major counterparts yesterday. Separately, the central bank lowered its unemployment target and hiked its inflation forecast for this year. However, the Fed Chairwoman, Janet Yellen, did not provide much clarity on the timing of interest rate cuts citing that there would be a considerable period of time between the end of QE to the first rate hike. She further indicated that the central bankers are still chalking out a framework of how the short term interest rates would be raised in the future. The US Dollar is trading on a weaker footing against the Euro and the Pound this morning. Meanwhile, investors will keep a close watch on today’s initial jobless claims report to gauge the pace of recovery in the domestic labour market.

Euro – European Markets

The common currency advanced against the greenback in yesterday’s trading session after the US Fed lowered its growth forecast for this year and stated that it might keep interest rates near its current record low levels for some more time after it winds down its stimulus measures. Meanwhile, the single currency also gained pace against the Pound despite the BoE minutes offering a hawkish view over its plan to hike interest rate. However, continued strife in Eastern Europe and Iraq kept the upside in the Euro limited. With no major domestic triggers today, the Euro continued to trade on a firmer footing against its major counterparts this morning. Meanwhile, market participants will keep a close watch on the Euro group meeting commencing later today, wherein policymakers might provide cues regarding the central bank’s view towards the strength of the common currency as well as the overall condition of the economic recovery in the region. Additionally, today’s US jobless claims report along with tomorrow’s Euro zone consumer confidence data will keep the investors in Euro-US Dollar on their toes.

Other Currencies – Highlights

Data released overnight revealed that on an annual basis, the New Zealand economy expanded at a faster than expected pace during the first quarter and reached its highest post crisis level since 2007, aided by a strong boost to its construction sector. These figures offered support to the RBNZ Governor, Graeme Wheeler’s plan after he hiked key rates last week for the third time in this year. However, the New Zealand Dollar is trading lower against the US Dollar this morning, though it remains close to its six-week high. Meanwhile, the Kiwi Dollar ticked higher against the greenback in yesterday’s trading session after the US Fed sliced its growth outlook for this year, mainly on the back of slow growth recorded during the first quarter while indicated that the interest rates would remain lower for some more time. With lack economic releases in New Zealand today, the movement in the Kiwi Dollar will be triggered by today’s jobless claims report in the US, which is likely to provide further evidence that the labour market continues to recover at a steady pace.