BoE and ECB Policy Meetings Today

Although both the BoE and the ECB are unlikely to initiate a shift in their respective policy stance, today’s central bank policy meetings in Europe will be keenly followed by market participants for hints about a potential move in the near future. With the OECD warning of an impending housing bubble in the UK, it remains to be seen if the BoE will act to curb house prices at home. Meanwhile, the ECB is likely to adopt a wait and watch approach, given the recent improvement in manufacturing and services PMIs for April. Across the Atlantic, speeches from Fed policymakers and initial jobless claims numbers will gain market attention, especially after the Fed Chief’s dovish comments yesterday.

Pound Sterling – UK Markets

Sterling is range bound against most of its major counterparts in today’s trading session. Going forward today, the outcome of the monetary policy meeting will be keenly eyed, though the central bank is unlikely to alter its current stance despite an improvement in manufacturing and services activity reports. However, the BoE’s forward guidance, if offered, will attract maximum attention, given that the current unemployment rate is below its previous benchmark target. Additionally, as urged by the OCED earlier this week, it remains to be seen if the central bank outlines any measures to prevent the domestic housing market from overheating. However, reports released earlier from RICS and Halifax indicated that house prices eased for April, thereby providing some relief over the looming housing bubble in the nation. The Pound failed to cross 1.70 mark against the US Dollar in yesterday’s trading session despite dovish comments from the US Fed Chief, as investors preferred to remain on the sidelines ahead of today’s BoE monetary policy meeting.

US Dollar – US Markets

Yesterday, the Fed Chairperson, Janet Yellen, indicated that the current monetary accommodation policy remains intact, given the slack that still persists in the economy even though conditions in the labour market have improved. However, dovish comments failed to put pressure on the US Dollar against the majors yesterday. The Fed Chief further opined that the central bank expects economic growth to accelerate in 2014, despite a slowdown in the first quarter. The recent macroeconomic data in the US suggests that the slowdown witnessed in the first quarter was a temporary phenomenon due to weather related disruptions and that the economy is slowly heading towards the recovery path. Today’s initial jobless claims numbers are also likely to confirm the improving labour market conditions in the US. In the absence of decisive domestic triggers today, the greenback is trading in a tight range against the Euro this morning, following strong Chinese trade data for April. However, investors in the Euro-US Dollar pair will keep a close tab on the ECB monetary policy decision due later today. Also, a speech from Janet Yellen, along with some other policymakers, will generate market interest later in the session.

Euro – European Markets

The Euro was fairly range bound against both the US Dollar and the Euro in yesterday’s trading session. Dovish comments from the US Fed Chief and easing tensions in Ukraine had minimal impact on the single currency. The Russian President, Vladimir Putin, indicated that he is ready to enter talks to calm the Ukrainian crisis. Additionally, Russia withdrew forces from the border and urged separatists in eastern Ukraine to postpone their referendum on independence. On the macro front, yesterday’s data showed that German factory orders dropped unexpectedly due to a sharp decrease in foreign demand, while today’s report indicated that industrial production declined surprisingly for March, further heightening concerns over the pace of recovery in the region’s largest economy. In today’s trading session, the single currency has moved higher against the greenback. Most of market attention today is focused on the outcome of the ECB monetary policy meeting. With mostly encouraging activity reports across Europe for April, the ECB is unlikely to provide any surprises on the policy front, although Mario Draghi’s post-meeting press conference will be keenly watched for further direction.

Other Currencies – Highlights

The Aussie Dollar has strengthened against the US Dollar in today’s trading session following upbeat domestic labour market report and Chinese trade data. Data showed that employers in Australia added more than expected jobs while the unemployment rate remained steady for April. Additionally, better than expected Chinese trade data spurred demand for the Aussie Dollar as it eased concerns over an economic slowdown in the world’s second largest economy. Yesterday, the Australian Dollar was under pressure against the majors as domestic retail sales data for March missed market estimates. With no major domestic macro data today, investors will keep an eye on today’s US jobless claims data and comments from some Fed officials later today for further direction.