BoE and Fed Policy Meeting Due This Week
This week the spotlight will continue to be on the central banks with both the US Federal Reserve (Fed) and the Bank of England (BoE) due to discuss their monetary policies on Wednesday and Thursday respectively. Although markets do not expect the central banks to deviate from their current policy stance, any change in tone from policymakers with regards to domestic interest rates on both sides of the Atlantic could trigger volatility in trading in the currency pair.
On the economic data space, the UK and US calendar is devoid of any significant macroeconomic prints today. Following the European Central Bank’s (ECB) move last week to expand its quantitative easing programme, today investors will eye an update on the Euro zone’s industrial sector activity for January, scheduled for release in a short while, to re-evaluate the region’s growth outlook.
Pound Sterling – UK Markets
The Pound is trading higher against the common currency this morning. With no major economic releases scheduled in the UK, much of the further trading direction in the Euro - Sterling currency pair will be dependent on the Euro zone’s industrial production data which is due for release today. However, any adverse economic releases in the Euro zone are unlikely to support an upward momentum in the Pound as fears over the Britain’s in/out referendum on the EU continue to weigh on the demand for the local currency. Going forward, it is going to be a busy week for Sterling investors with key employment data and the latest government budget to be presented by the UK Finance Minister, George Osborne, on Wednesday. Following the budget speech, the BoE has its monetary policy meeting on Thursday.
The Pound edged higher against the shared currency on Friday as the effect of the ECB President, Mario Draghi’s comment faded and the change in its monetary policy weighed on the Euro. The currency received further support after data showed that the UK’s trade deficit narrowed in January led by a decrease in imports.
US Dollar – US Markets
The US Dollar reversed its early morning losses and is trading higher against the shared currency, ahead of the interest rate decision to be made at the Federal Open Market Committee's (FOMC) meeting on Wednesday. Markets anticipate that the Fed will stay put this week, amid a string of dismal US macroeconomic data in the past few days. Given the absence of economic data in the US docket today, next in focus will be the US retail sales and producer prices data which are scheduled for release tomorrow. Expectations are that US retail sales cooled in February after regaining its momentum at the start of the New Year as motor vehicle purchases eased and lower gasoline prices limited service station receipts. Moving ahead, US consumer prices along with a string of US housing data will be eyed by investors to gauge the health of the economy amid ongoing global uncertainties.
On Friday, the greenback pared earlier gains against the Euro as market participants absorbed recent policy changes by the ECB and comments from its President, Mario Draghi.
Euro – European Markets
On Friday, the Euro pared only a small part of gains against the US Dollar, not too far away from the one-month highs achieved a day before, when the ECB had announced a comprehensive stimulus package but also signalled that the central bank might not cut rates again in the future.
At the start of a new week, the common currency appears to be gradually losing ground against the US Dollar. Today, the European calendar is light with only the Euro zone’s industrial production data scheduled for publication in a short while. Expectations are for the nation’s industrial sector to show a significant rebound at the start of the year, following consecutive declines in November and December. However, Markit’s PMI survey on manufacturing activity in the Euro zone has painted a bleak picture for the region with factory output hovering close to the neutral mark for the second month in a row through February. This has raised concerns that the Euro zone economy might have yet another year of sluggish growth in 2016.
Other Currencies – Highlights
The US Dollar - Japanese Yen currency pair is currently trading on the back foot. On the macroeconomic data front, market participants seemed to have shrugged off the stronger than expected core machinery orders for Japan for January, which was released earlier today. Data indicated that a rise in orders from steelmakers and shipbuilders led to an increase in core orders for the second consecutive month in January.
Moving ahead, the Bank of Japan (BoJ) began its two-day monetary policy meeting today which will be followed by the BoJ interest rate decision tomorrow. Expectations are that the central bank will keep its monetary policy unchanged as BoJ policymakers are likely to discuss the financial developments since the introduction of the negative interest rate policy. Another key event this week will be the two-day FOMC meeting which will commence from tomorrow, with investor focus on the pace of further interest rate rises.