Mark Carney Dampens Rate Hike Speculation

The BoE Governor, Mark Carney’s comments yesterday effectively quashed speculation of a rate hike in the near term, with the central bank indicating that the amount of slack in the economy is unlikely to persuade the BoE to raise interest rates anytime soon. Meanwhile, the domestic labour market continues to show steady progress, with the unemployment rate easing further to 6.8% for March. In the Euro zone, following a better than expected expansion in the German economy for the first quarter of 2014, the focus has now shifted towards today’s Euro zone GDP and inflation reports for insights into the strength of recovery in the currency bloc. In the US, a slew of macro releases and Janet Yellen’s speech will drive market sentiment today.

Pound Sterling – UK Markets

The Pound slipped against the majors yesterday after the BoE Governor played down hopes of any immediate hike in interest rates, citing that the British economic recovery is still in its early stages of recovery. He further opined that the monetary policy is not the appropriate policy to control the housing market. Meanwhile, the central bank left its 2014 inflation and growth target unchanged. However, the central bank raised its GDP target for 2015 to 2.9% while unemployment rate is expected to drop to 6.6% by the end of 2014. Data released earlier yesterday indicated that the unemployment rate dropped, as expected, to 6.8% while the number of people claiming for jobless benefits declined at a slower than anticipated pace for March, although strengthening views that the UK labour market continues to recover. Sterling recovered marginally against the Euro this morning amid increased hopes of the ECB adopting tighter measures to combat deflationary pressures. In absence of any major macro data at home today, investors will keep a close tab on crucial data from Europe and US for further direction.

US Dollar – US Markets

The US Dollar advanced against the Pound in yesterday’s trading session after the BoE quarterly inflation report dashed hopes for an impending rate hike. Data released yesterday indicated that producer prices in the US rose more than expected and climbed to a near one and a half years high for April. Earlier this month, most Fed policymakers raised concerns that the low inflation prevalent in the nation is hampering the pace of recovery in the world’s largest economy. Against this backdrop, today’s consumer price inflation numbers will be closely watched to gauge the overall inflation trend in the nation. The greenback is trading on a firmer footing against the Euro this morning after an ECB official indicated that the central bank is ready to act swiftly, if required. Going forward today, apart from inflation figures, industrial and manufacturing production reports along with regional manufacturing activity prints will be keenly eyed for ascertaining the pace of economic recovery in the US during the second quarter of 2014. Also, the Fed Chief, Janet Yellen’s address to the US Chamber of Commerce later today has the potential to sway market sentiment.

Euro – European Markets

Data released earlier today indicated that the German economic growth accelerated at a faster than expected pace while the French economy stagnated during the first quarter of 2014. However, the Euro dropped against the US Dollar this morning after the ECB Vice President, Vitor Constancio, indicated that the central bank was ready to act swiftly, if required and does not rule out more monetary easing. Additionally, investors remain cautious ahead of today’s Euro zone GDP report along with the final consumer price inflation data. In the wake of mostly encouraging inflation prints from European economies, today’s Euro zone inflation data is likely to confirm that inflation in the region accelerated for April. Additionally, a slew of major macroeconomic data in the US today will keep the Euro-US Dollar investors on the edge. In yesterday’s trading session, the Euro advanced against the Pound after the BoE quarterly inflation dashed market hopes of an interest rate hike in the near term. Meanwhile, the Bundesbank President, Jens Weidmann, confirmed media reports that the German central bank would willing back the ECB’s decision to unveil fresh policy measures to combat low inflation prevalent in the region.

Other Currencies – Highlights

The Japanese Yen pared is trading almost unchanged against the US Dollar this morning. Data released overnight indicated that the Japanese economy expanded at a faster than expected pace during the first quarter of 2014, helped by an improvement in domestic demand. However, consumer confidence in the nation fell for the fifth consecutive month for April, weighed down by recent sales tax hike that dampened sentiment. Meanwhile, the BoJ Governor, Haruhiko Kuroda, reiterated that the Japanese economy is on track to achieve its 2% inflation target. With no major domestic macro data scheduled today, market participants will keep a tab on today’s crucial macro reports from the US to ascertain the pace of recovery in the world’s largest economy during the second quarter. Additionally, tomorrow’s domestic industrial production data will keep investors in the Japanese Yen interested.