UK Retail Sales Surpass Market Expectations

The just out upbeat domestic retail sales data has added to expectations that the UK economy is likely to maintain its steady pace of recovery into the second quarter, propelling the Pound higher against the majors. Meanwhile, the minutes of the BoE’s monetary policy meeting revealed that policymakers believed that the consumer price inflation is likely to hover close to the 2% mark in the coming months and the key rate is likely to rise gradually. Across the Atlantic, the minutes of the Fed’s latest policy meeting along with Janet Yellen’s speech will gain market interest today. In the Euro zone, despite the ongoing turmoil in Eastern Europe, today’s consumer sentiment report is likely to show an improvement for May.

Pound Sterling – UK Markets

The just released UK macro data has shown that retail sales in the nation climbed for April, thereby making a bright start to the second quarter of the year. However, the higher than expected rise in retail sales growth also reflects the distortion due to the timing of Easter. Subsequently, the Pound has moved sharply higher against its peers this morning. Further, the minutes of the BoE’s latest monetary policy meeting revealed that MPC policymakers discussed briefly about an over-heating domestic housing market. The BoE officials also voted unanimously to maintain the central bank’s current policy stance. With little on the domestic macro front, the Fed Chair, Janet Yellen’s speech will provide direction to the Pound-US Dollar pair in the session ahead. In the run-up to yesterday’s domestic inflation report, Sterling had climbed against its peers, but gave up some of its gains following the release of the report amid concerns that inflation continues to outstrip wage rise. The upbeat assessment of the UK economy by the OECD kept Sterling supported against the majors yesterday. Meanwhile, the BoE Deputy Governor, Charlie Bean, indicated that central banks around the world might face difficulties unwinding their respective stimulus programmes.

US Dollar – US Markets

The US Dollar slid against its peers in today’s trading session, as market participants await hints on the possible stance that the Fed might adopt in the future. Against this backdrop, the FOMC minutes of the last policy meeting due later today is likely to attract market attention, especially considering that there was no press conference following the policy meeting. Besides, few members of the monetary policy committee, including the Fed Chief, Janet Yellen, are expected to speak later today, thus possibly offering an encompassing view of the interest rate regime that will be followed in the future. Yesterday’s comments from the FOMC members offered a contrasting view on the future course of interest rates in the US. While influential policymaker, William Dudley, opined that the pace of rate hikes would be ‘slow’, the Philadelphia Fed President, Charles Plosser, reaffirmed his hawkish stance by stating that recovery in the US could prompt the central bank to hike rates “sooner rather than later”. In the absence of any major economic releases, the greenback traded in a tight range against the single currency in yesterday’s trading session.

Euro – European Markets

The common currency traded in a tight range against the greenback yesterday as the currency pair swayed to the views expressed by key central bank officials from both sides of the Atlantic. Although comments from ECB policymakers did not explicitly reveal the steps that the ECB might adopt in the next month’s policy meeting, the underlying dovish tone in yesterday’s comments suggested that the ECB is readying tools to combat deflationary pressures. Meanwhile, yesterday’s data showed that Italian industrial orders rebounded and the current account balance swung to a surplus for March, thereby pacifying concerns about the state of affairs in the Italian economy, especially following lacklustre growth figures for the first quarter. The common currency has remained range bound in today’s trading session, as market participants await cues from the US and tomorrow’s PMI releases from the Euro zone for further direction. Besides, today’s Euro zone consumer confidence index will also be monitored closely to gauge the morale among consumers, in the midst of the prevalent threat to the region’s economy sliding into a deflationary phase.

Other Currencies – Highlights

The Japanese Yen is trading on a firmer footing against its major peers this morning. Earlier today, the Bank of Japan offered a positive outlook of the Japanese economy, highlighting that last month’s sales tax hike had less impact on the economy than initially feared. The encouraging assessment of the domestic economy has dampened hopes of an additional round of stimulus by the central bank in the near term, although the BoJ Governor, Haruhiko Kuroda, reinforced that the central bank would persist with its easing measures until inflation stabilised at 2%. Additionally, on expected lines, the BoJ maintained its key interest rate at record low levels. Meanwhile, the weaker than expected trade deficit print in Japan has limited the upside in the Japanese Yen against the majors today. In the wake of a relatively light domestic economic calendar for the rest of the week, investors in the Japanese Yen will keep a tab on a string of global macro releases for further direction to risk appetite.