A Crucial Week Ahead
This week, investors have their plates full in terms of crucial economic releases, both domestically as well as globally. The upcoming week is likely to have a bearing on the BoE policymakers’ decision making going forward, considering important macro releases scheduled this week including consumer price inflation, jobs and retail sales reports. With last week’s domestic industrial production and trade data being unimpressive, Sterling investors hope for a turnaround this week.
Across the Atlantic, the outcome of the FOMC meeting is likely to attract maximum market attention this week. It would be interesting to see whether the recent volatility in global markets emanating from the turmoil in China prompts the US Fed to adopt a “wait and watch” approach in its policy meeting.
Pound Sterling – UK Markets
Sterling witnessed an eventful last week, with the Pound-US Dollar pair breaching the crucial 1.54 mark after the minutes of the BoE policy meeting reassured investors that an interest rate rise by the central bank remains on track despite the unfavourable external environment. Market focus has now shifted to this week’s tier-1 domestic economic data including consumer prices, unemployment and retail sales for further direction. Markets expect the outcome of these macro releases to offer some relief to investors, especially considering that last week’s manufacturing production and trade data missed market consensus. Any positive surprises this week on the economic front is likely to play on the minds of the BoE policymakers to alter their stance on the future course of the monetary policy.
With little on the domestic and global macro front today, Sterling is likely to trade in a tight range against the majors. Some volatility can be expected in the domestic currency during the latter half of the week, considering the impending interest rate decision by the US Fed.
US Dollar – US Markets
The US Dollar has started the weekly session on a softer footing against most of the majors, as market participants await whether the Fed would raise interest rates for the first time in nearly a decade at its monetary policy meeting scheduled later this week. The greenback could move higher during the week if the Fed Chief, Janet Yellen, initiates any move to prepare households and businesses in the world’s largest economy for higher borrowing costs. However, if the central bank policymakers continue with another unanimous vote to maintain their present monetary policy, it may further delay the normalization of the interest rate cycle as the central bank pays more attention to the downside risks surrounding the global economy. Meanwhile, the Fed would have access to retail sales and the final CPI reading, due for release on Tuesday and Wednesday, respectively, before embarking on its interest rate decision.
On Friday, the greenback weakened against the Euro after data showed that Reuters/Michigan consumer sentiment deteriorated more-than-expected for September. Additionally, another report showed that US producer prices remained flat on a monthly basis for August.
Euro – European Markets
The Euro has begun today’s session on a flat note against the greenback. Despite a relatively clam start to the weekly session, the US Fed’s monetary policy decision due this week may influence the near to medium-term outlook for the Euro-US Dollar pair to a great extent, particularly as the ECB at present displays a greater inclination to further embark on its easing cycle. In the session ahead, markets will keep a watch on Euro zone’s industrial production data which is expected to show a rebound on a monthly basis for July.
During the weekend, the Euro zone finance ministers, at a meeting in Luxembourg, downplayed risks of the outcome of the Greek election scheduled later this month to elect a new government for the fourth time in six years and urged the Greek authorities to continue with the measures undertaken for the nation’s bailout. Going forward this week, investors would keep a tab on the release of ZEW survey indicators from Euro zone and Germany which is likely to provide a fair idea about the region’s economic health.
Other Currencies – Highlights
The Japanese Yen is trading higher against the greenback this morning. Data released earlier today showed that industrial production in Japan dropped on a monthly basis for July, while the tertiary industry index rose for the same month, however at a slower pace compared to the previous month.
Going forward, all eyes will be on the Bank of Japan’s monetary policy meeting scheduled early tomorrow, wherein investors would pay attention on whether the central bank downgrades its economic and inflation estimates on the nation. Any downgrade in future prospects of the nation could pave way for more stimulus in the coming months as the country tries to get back on to its feet following the double whammy of weak growth and deflation in recent years. Additionally, markets will keep an eye on the nation’s trade data which is expected to show that trade deficit widened for August. However, most of market attention will be focused on the outcome of the US FOMC meeting due later this week for further direction to the Japanese Yen against the majors.