BoE and ECB Keeps Policy Stance Unchanged
The BoE, in its policy meeting yesterday, kept its key interest rate unchanged at 0.5%, as majority of policymakers adopted a “wait and watch” approach amid signs of weakening inflation in the UK. Additionally, today’s report has revealed that the BoE lowered its inflation forecasts for the next twelve months in the UK. However, Sterling investors have shown little reaction to this report as they remained focused on the official labour market report in the US which is anticipated to show that job growth and domestic earnings gained momentum for November.
Across Europe, the ECB indicated that it will decide on fresh stimulus in early next year as policymakers await the outcome of the recently introduced easing measures on the region’s economy.
Pound Sterling – UK Markets
Data just out showed that the BoE lowered its consumer price inflation expectations in the UK for the next twelve months amid prospects of deflation in Europe and weak global energy prices. However, this was not a major surprise to investors, especially after the BoE’s recent quarterly inflation report highlighted prospects of an easing trend in Britain’s headline inflation going forward. The Pound has shown little reaction to today’s data and remained range bound against the common currency. Moving ahead, next week’s BoE bulletin for the fourth quarter along with the NIESR GDP estimate for three months ended November will attract significant attention.
Yesterday, the BoE concluded its policy meeting in which a majority of policymakers voted for “no change” to the central bank’s current policy stance. Traders will now keenly await the minutes of this policy meeting to gain an insight into the UK labour market’s spare capacity. Additionally, investors will eye the publication for more clarity on the nation’s wage growth, especially after the recent minutes revealed that domestic earnings is expected to improve going forward.
US Dollar – US Markets
The greenback is trading on a firmer footing against the Pound ahead of today’s official US labour market report for November. The report will be looked to for verification of any material impact on the hiring pace in the nation, especially after the US Fed ended its quantitative easing programme in October. Data is anticipated to show that non-farm payrolls increased at a robust pace for November and added more than 200K jobs in the US for an eighth month in 2014. Additionally, domestic earnings are expected to edge higher and limit prospects of a slowdown in US inflation amid a recent drop in global energy prices. Considering the importance of employment numbers on the US Fed’s policy guidance going forward, any downside surprise in today’s labour market data due to the cold November weather is likely to stoke concerns among traders. Separately, another survey scheduled later today is expected to show that factory orders in the US remained flat for October.
Going forward, market participants will eye next week’s retail sales and preliminary Reuters/Michigan consumer confidence data in the US for further direction to the greenback against the majors.
Euro – European Markets
Yesterday, the Euro rose against the majors after the ECB, in its policy meeting, kept its key interest rate unchanged at 0.05%, in line with market estimates. However, the ECB Chief, Mario Draghi, stated that the central bank would reassess Euro zone’s macro trend early next year and add more stimulus, if needed. He further indicated that the ECB is likely to go ahead with an outright bond purchase programme despite Germany expressing strong reluctance for the same. Going forward, investors await results of next week’s TLTRO auction to gauge if the ECB meets its balance sheet expansion target through the auction.
Data released earlier today showed that German factory orders on a monthly basis grew more than expected for October. This has eased some concerns among investors, especially amid recent downbeat macro data showing that growth in the nation is faltering for the last quarter of 2014. Later today, investors will eye Euro zone’s revised GDP reading to verify if economic growth in the region remained moderate for the third quarter. An upside surprise in the reading is likely to weaken the case for further stimulus measures in the region.
Other Currencies – Highlights
The Canadian Dollar is trading on a weaker footing against the greenback this morning ahead of crucial labour market reports in Canada and the US. The Canadian job market data is anticipated to show that job additions growth slowed and the unemployment rate in the nation rose for November. Amid signs of a moderation in the Canadian labour market growth, investors would take the recent optimistic comments from the Bank of Canada Governor with a pinch of salt in which he indicated that economic recovery in the nation is broadening. Separately, traders will also eye Canada’s trade data scheduled later today which is anticipated to show that trade surplus in the nation narrowed for October amid lower crude oil prices.
Going forward, considering the close correlation between the Canadian Dollar and oil prices, market participants will eye the OPEC meeting scheduled next week for further direction to the Canadian Dollar against the majors.