UK Inflation Rises More Than Expected

The just released domestic economic data has shown that inflation at home reversed its recent downward trend and edged up more than forecast for April. However, the upbeat inflation report is unlikely to dissuade the BoE from sticking to its policy stance in the near term. Against this backdrop, tomorrow’s BoE minutes will be closely watched by investors to ascertain views of the MPC policymakers with regards to the over-heating housing market. In the US and Europe, central bank policymakers continue to offer mixed signals about their policy stance going forward, thereby confounding market participants. In today’s session, another round of speeches by influential Fed and ECB officials is expected to drive market sentiment.

Pound Sterling – UK Markets

Despite the release of the better than expected consumer price inflation report for April just now, the Pound has shown little reaction against its peers this morning. Sterling had moved higher against the majors earlier in the day in anticipation of a positive inflation report. However, with the BoE Governor, Mark Carney, indicating last week that the central bank is in no rush to raise interest rates, citing persistent slack in the economy, the rise in inflation is unlikely to alter market sentiment towards Sterling. Later today, a speech by MPC policymaker, Charlie Bean, will be closely watched by market participants for his take on the nation’s economy and policy ahead of the release of the minutes of the BoE’s latest monetary policy meeting tomorrow. Additionally, speeches from influential Fed policymakers will keep investors in the Pound-US Dollar interested today. In the midst of a light global economic calendar, Sterling searched for direction against the US Dollar yesterday. The Rightmove house price index report released over the weekend did little to ease fears of a housing bubble in the nation, as house prices continued to rise amid rising demand and shrinking supply.

US Dollar – US Markets

With little on the macro front to cheer market participants yesterday, currency markets remained largely subdued. The US Dollar was also range bound against its major counterparts. Meanwhile, the San Francisco Fed Bank President, John Williams, indicated that the central bank is likely to begin raising interest rates only in the second half of 2015, given the continued weakness in the domestic labour market. However, Williams remained optimistic about the overall US economic recovery, indicating that growth in the upcoming quarters is likely to be more solid. The greenback is trading in a tight range against the common currency in today’s trading session as investors continue to await any decisive macroeconomic data. However, the US Dollar has moved lower against Sterling following the release of encouraging UK inflation report this morning. In the absence of major macro releases, speeches by few Fed officials will provide direction to the greenback in the latter half of the trading session today. Additionally, developments in Eastern Europe will be eyed by market participants in the session ahead.

Euro – European Markets

In a quiet trading session yesterday, the Euro was range bound against the greenback tracking mixed comments from ECB officials. The Bundesbank President, Jens Weidmann, offered a slightly hawkish view, indicating that the ECB must not take a one-dimensional view of the strong Euro while considering alteration to its monetary policy. Additionally, the ECB Governing Council member, Ewald Nowotny, indicated that growth in Germany and the Euro zone is expected to pick up in the coming quarters and more data must be checked before considering any stimulus measures. However, Yves Mersch, another ECB official, sounded dovish as he opined that the low inflation might compel the ECB to resort to further monetary easing next month. The common currency has weakened against its major peers this morning after German producer prices report showed continued deflationary price pressures on the economy, further raising concerns about the strength of the nation’s economic recovery. Later today, speeches by ECB officials will sway investors’ sentiment towards the Euro. Market participants are expected to keep a close eye on the comments for hints on what stimulus measures the ECB might resort at its next policy meeting.

Other Currencies – Highlights

The Australian Dollar lost ground against its major peers this morning following the release of the minutes of the Reserve Bank of Australia’s latest monetary policy meeting. The RBA reinforced that its benchmark interest rate is expected to remain at its present low level for a prolonged period of time, citing an improving economic activity. The RBA also reiterated that inflation continues to hover within the central bank’s target range of 2% to 3% and is likely to remain there for some more time. Moreover, the RBA assistant Governor, Guy Debelle, indicated that the decline in capital inflows into Australia due to a slowdown in mining investment is likely to further weaken the Aussie Dollar. With no more domestic macro data scheduled for release today, investors in the Australian Dollar will keep a tab on global economic cues for further direction. Additionally, tomorrow’s domestic consumer confidence numbers will also prove crucial for the Aussie Dollar against the majors in the near term.