BoE Rate Hike Chatter Rises

In the wake of continued improvement in the UK economy, most of the BoE officials including the BoE Governor have validated the possibility of an earlier hike in interest rate. Growing speculation of a possible shift in the UK’s interest rate regime has assisted the GBP to trade convincingly above the 1.70 mark against the US Dollar in today’s session. Meanwhile, next week’s Financial Stability report will attract market attention for any cues to cool down the UK housing market. Across Europe, today’s Euro zone consumer confidence report will show that consumer optimism continued to enhance after the ECB unveiled fresh stimulus measures. Meanwhile, events unfolding in Iraq continues to hold the potential to alter investor sentiment going forward. 

Pound Sterling – UK Markets

Strong sales of World Cup football jerseys in the UK failed to overshadow a drop in food sales as retail sales for May fell for first time since January 2014 on a monthly basis. However, the Pound advanced against the US Dollar and greenback in yesterday’s trading session. Meanwhile, joining the chorus of policymakers indicating a rate hike, BoE policymaker, Ian McCafferty, indicated that a rate hike will be dependent on the economic performance going ahead, while growth in the nation is expected to remain robust. Earlier this week, the US Fed downwardly revised its economic growth forecast for this year and indicated that it would continue to maintain interest rates near its current low levels for prolonged period thereby underpinning demand for the Pound against the US Dollar. Meanwhile, data just released indicated that the UK government continued to borrow for May. In the next week, markets will keep a close watch on the final UK GDP numbers and the inflation hearings report for further direction. Additionally, next week’s housing market report will attract market attention in the wake of continued concerns over the overheating domestic housing market.

US Dollar – US Markets

Dovish comments by the US Fed Chief and downward revision of the US economic growth for this year weakened the greenback against its major peers yesterday. Data released earlier indicated that the number of people filing for jobless benefits dropped more than expected last week. Meanwhile, Philadelphia region manufacturing activity improved unexpectedly at a faster pace to a nine month high for June, thereby offering additional evidence of a recovery taking effect during the second quarter. However, the encouraging domestic economic releases failed to revive the US Dollar. With no major domestic triggers today, the US Dollar is trading in a tight range against its major peers this morning. In the forthcoming week, markets will keep a close watch on the US final GDP numbers along with a raft of economic releases, especially manufacturing and housing sector reports to gauge the pace of recovery in the region. Separately, events unfolding in Iraq will also keep investors on their toes. 

Euro – European Markets

With no major macro releases in Europe yesterday, the Euro continued its gains against the US Dollar after the US Fed lowered its 2014 economic growth forecast and dashed hopes of an early interest rate hikes. Separately, the IMF Managing Director, Christine Lagarde, urged the ECB to contemplate quantitative easing, if inflation in the currency bloc remains stubbornly low for an extended period. The ECB Vice President, Vitor Constancio, stated that prospect for a prolonged period of deflation in the Euro zone remains bleak but added that soft inflation should be tackled through a broad based asset purchases programme. Meanwhile, the Euro is range bound against its major peers this morning. Investors will closely eye today’s Euro zone consumer confidence report which is expected to show an improvement for June as consumer’s optimism has been gradually increasing, possibly supported by falling prices in the overall economy. Going forward, next week’s German inflation numbers for June along with manufacturing and services PMIs across Europe will offer insights about the initial impact of the ECB’s unprecedented policy loosening measures.

Other Currencies – Highlights

The Swiss Franc advanced against the greenback yesterday after the Swiss National Bank (SNB) kept its key interest rate unchanged at zero. Additionally, the central bank reaffirmed that it would continue to implement the minimum exchange rate, while indicating that it is prepared to purchase foreign currency in unlimited quantities and take further measures if necessary. Furthermore, the SNB President, Thomas Jordan, projected the Swiss economy would continue with its moderate pace of recovery in coming quarters, despite an extremely challenging climate due to weak growth in the Euro area. With no major economic releases in Switzerland as well as the US today, the Swiss Franc is trading in a tight range against the US Dollar this morning. Going forward, markets will keep a close watch on next week’s Swiss trade balance report along with a slew of macroeconomic releases in the US for further direction.