Inflation Hearing Report in Spotlight

With the BoE Governor, Mark Carney, signalling the possibility of a rate hike early next year, today’s inflation hearing report where the Governor would testify before the Treasury Select Committee will keep market participants interested in order to seek further clarity over the central bank’s future policy stance. Meanwhile, mostly upbeat recent domestic economic releases along with upbeat assessment by the NIESR in its report yesterday, suggests that the UK’s economic recovery remains on track. However, investors are likely to remain cautious on account of the uncertainty surrounding the Scottish referendum scheduled next week. With little on the global economic front, markets will keep a close watch on geopolitical tensions in Eastern Europe for further direction to risk appetite.

Pound Sterling – UK Markets

The BoE Governor, Mark Carney, at the annual meeting of the Trades Union Congress, indicated that the central bank might hike its benchmark interest rate next spring if the domestic labour market continues to improve. Carney reassured that rate hikes in the nation will be limited and gradual while stating that wages might start rising in real terms around the middle of 2014 and would accelerate thereafter. Market attention has now shifted to today’s inflation hearing report for further clarity over the central bank’s future policy move as the Governor will testify before the Treasury Select Committee. Meanwhile, data released yesterday revealed that both industrial and manufacturing production improved for July, hinting that the nation’s strong recovery might extend into the third quarter. Additionally, a report by NIESR indicated that the UK economy expanded for the three months ended August. However, the Pound traded under pressure against its major counterparts yesterday as uncertainty surrounding Scotland continued to dominate market sentiment.

US Dollar – US Markets

The greenback lost ground against the common currency in yesterday’s trading session. The NFIB survey, the only key economic release from the US in yesterday’s session, showed a more than anticipated improvement in confidence among small scale businesses for August. However, the NIFB downplayed expectations by adding that the domestic job growth remained weak across firms in the small scale sector. In light of last week’s downbeat labour market report, yesterday’s NFIB report presents another evidence of a possible slowdown in job growth. With no major economic releases scheduled for today, the greenback is trading in a tight range against its major peers this morning. Chinese economic releases scheduled for tomorrow are likely to be scrutinised, as fears of a slowdown in the Chinese economy still prevail. Additionally, the US retail sales figures and the Reuters/Michigan consumer confidence survey scheduled later this week are expected to shed some light on the prospects of growth in the nation during the third quarter.

Euro – European Markets

The Euro is trading in a tight range against the majors this morning. Data just out indicated that industrial output in France improved unexpectedly for July. This was in contrast to the recent PMI surveys, which showed continued weakness in French manufacturing activity. Market participants are now awaiting a speech by the ECB President, Mario Draghi, scheduled tomorrow, given the dramatic fall witnessed in the single currency following the central bank’s move to unleash fresh policy measures. Markets will remain watchful whether the ECB Chief divulges further details about the recently formulated asset purchases plan. In the midst of a lack of major economic releases in the Euro zone, the common currency gained ground against the majors in yesterday’s trading. Prospects of further EU sanctions on Russia faded after separatist insurgents released Ukrainian soldiers under the terms of the truce agreement signed recently. However, traders still remain watchful of events unfolding in Eastern Europe, as the political situation still remains fragile.

Other Currencies – Highlights

The New Zealand Dollar is trading lower against the greenback this morning ahead of the RBNZ’s policy meeting scheduled later today. At the last policy meeting, the RBNZ Governor, Graeme Wheeler, had indicated that interest rates are expected to remain stable for some time. Given the recent spate of mostly weak domestic economic data, expectations for the policymakers to keep the key interest rate unchanged is high. The post meeting press conference will grab attention to gauge the status of the nation’s economic growth, especially with dairy prices falling sharply due to a drop in demand from China. Data released earlier this week showed that the pace of manufacturing sector activity in the nation slowed for the second quarter, further weighing on investors’ sentiment. The Kiwi Dollar is likely to remain under pressure against the majors, particularly with uncertainty surrounding the outcome of the national elections scheduled later this month. Furthermore, with domestic housing market and business activity data accompanied by crucial US retail sales numbers in the week ahead, the Kiwi Dollar-US Dollar pair is likely to witness some volatility.