UK Financial Stability Report and Carney’s Speech Eyed

Following a mix of dovish and hawkish comments from the BoE Governor over timing of interest rate hikes, his speech later today will be monitored for further direction. Some realistic measures are likely to be implemented in today’s Financial Stability report by the central bank in order to cool the overheating UK housing market and if some macro prudential measures are opted it could fade hopes of a near term rate hike. Across the Atlantic, today’s initial jobless claims and personal expenditure reports will gain market interest. Yesterday’s weak economic growth for the first quarter and an unexpected decline in durable goods orders have raised questions over the pace of recovery in the nation.

Pound Sterling – UK Markets

The much awaited UK Fintech Today Stability report is set for release today. This assumes significance especially after the Chancellor, George Osborne, earlier this month, bestowed the central bank with new power to cap mortgage lending. This could serve as an alternative tool available to the BoE and help cool an overheated housing market. If the central bank adopts some macro prudential measures it could reduce expectations of a near term interest rate hike. Markets are also keenly eyeing a speech by the BoE Governor, Mark Carney, particularly after conflicting indications from him this month. After sounding hawkish earlier this month, his latest statements have sent an unexpectedly dovish signal about the probable timing of the first interest rate hike. Meanwhile, the Pound is trading firmer against the majors this morning. With no major economic releases in the UK yesterday, the Pound initially advanced against the US Dollar on the back of the disappointing US final GDP growth for the first quarter and durable goods orders report for May. However, the Pound later pared its gains and closed almost unchanged against the greenback.

US Dollar – US Markets

Yesterday’s US GDP growth release for the first quarter indicated a higher than previously estimated contraction in economic activity, thereby validating the Fed’s recent commitment to continue to keep interest rates low for a considerable period of time. The dismal reading has been largely blamed on unfavourable weather conditions and weak overseas demand. Additionally, orders for US durable goods declined unexpectedly as demand for military equipment fell significantly for May. The US Dollar dropped against most of its major peers following the dismal domestic economic releases. Although most data released during the second quarter suggests an acceleration in growth in the world’s largest economy, the pace of recovery remains in question. The greenback is trading in a tight range against its major peers in today’s trading session. Markets will keep a close eye on today’s initial jobless claims report along with the personal consumption expenditure data for further insight into the state of the economy. Additionally, markets will closely watch speeches by some key Fed officials later today for further direction.

Euro – European Markets

The recent German ZEW and Ifo survey indicated that geopolitical tensions in Eastern Europe and the Middle East continued to weigh on investors’ sentiment and overall business outlook. However, yesterday’s German GfK report painted a somewhat positive picture as consumer morale rose to its highest level in more than seven years for July, assisted by the latest ECB decision to cut its key interest rate. Meanwhile, the common currency advanced against most of its major counterparts yesterday following upbeat German consumer confidence report. Additionally, the US GDP numbers for the first quarter were sharply revised lower and durable goods orders fell unexpectedly for May, pressurising the US Dollar. This morning, the single currency is trading in a tight range against most of its major peers. With no other major economic releases in Europe today, markets will keep a close watch on two-day EU summit meeting commencing later in the day. Moreover, the UK Financial Stability report and a slew of US economic releases will keep investors on their toes.

Other Currencies – Highlights

The Kiwi Dollar moved close to its 52 week high against the greenback in yesterday’s trading session as disappointing US GDP growth for the first quarter pressurised the greenback. Furthermore, this week’s upbeat preliminary Chinese manufacturing PMI indicated a pickup in industrial activity in the second largest economy and kept the New Zealand Dollar well supported. The Kiwi Dollar is trading in a tight range against the greenback in today’s trading session. Market expectations are that the recent elevated value of the New Zealand Dollar might have adversely affected the nation’s trade balance for May, which is set for release overnight. With no other releases on the horizon in New Zealand this week, the Kiwi Dollar will look for further direction to speeches by key US Fed officials, scheduled in the latter half of the trading session.