BoE Chief to Testify about UK’s Inflation Report
Today, all eyes will be on the Bank of England (BoE) Governor Mark Carney’s testimony about the latest quarterly inflation report in front of the Treasury Select Committee. The report which was delivered earlier this month had surprised markets by its dovish nature. Today’s tone of the BoE Chief will be crucial to Sterling investors who have been caught between the diverging Fed and ECB monetary policy outlook.
Earlier today, the Euro received fresh impetus against its key peers from stronger than expected German Ifo surveys and in line German Q3 final GDP data. Across the Atlantic, the Federal Reserve (Fed) Chairwoman Janet Yellen yesterday responding to a letter received from savers called for a gradual increase in interest rates. On the data front, the revised third quarter growth figures slated later in the day will be on the radar.
Pound Sterling – UK Markets
The Pound remains under pressure against the US Dollar this morning as investors tread in caution amid growing speculation that the BoE would send clear signals that it is in no hurry to raise its benchmark interest rate just yet. The BoE Governor Mark Carney will today testify in front of the Parliament Committee about the central bank’s latest inflation report. The report which was published earlier this month had a significant change in policymakers’ tone, who until now had suggested that the UK economy was headed towards a rate rise. Since the release of the report, market participants are likely to have pushed out expectations of policy tightening to the end of 2016. Nevertheless, Sterling investors will in particular try to gauge the tone that the BoE Chief decides to give in today.
Moving ahead, all eyes will be on the UK Chancellor’s presentation of the Autumn Statement and the latest growth and multiyear fiscal projections for the economy scheduled tomorrow. Data wise, the most notable publication for this week would be the third quarter preliminary GDP report due on Friday.
US Dollar – US Markets
Divergence in monetary policy among the major economies seems to be the current theme ahead of several central bank meetings scheduled in the next month. As a result, the US Dollar is trading higher against the Pound in anticipation of a likely Fed rate rise in December. Also, rate divergence had yesterday coerced the Euro – US Dollar currency pair lower to multi-month losses especially after the ECB Chief’s recent remarks that the central bank would take the required action to combat deflation in the Euro region. Meanwhile, the Fed kept the hopes of December policy tightening alive by publishing Fed Chairwoman Janet Yellen’s letter to a consumer advocate late yesterday in which she reiterated that the US central bank would soon be ready to begin raising rates, though subsequent rate increases will be gradual.
In the session ahead, third quarter US GDP is due for revision wherein markets are anticipating a modest improvement in the latest growth numbers. If the projections hold true, the news of a stronger pace of economic activity will add to confidence that the Fed will embark on raising key rates at its next policy meeting.
Euro – European Markets
The Euro briefly trimmed part of its losses and turned positive against the greenback earlier in the day after data confirmed an earlier flash estimate that the German economy grew at a modest pace for the third quarter helped by an increase in private consumption and higher government spending which more than compensated weakness in export trade. Record low joblessness and lower borrowing rates lifted domestic demand in Europe’s largest economy and offset the impact of slowing growth in China which had curbed German overseas sales.
In addition, the German Ifo survey report released today suggested that its expectations gauge showed a surprise improvement in November supported by signs of stabilisation in China, weaker Euro and better financing conditions on the back of ECB Chief’s latest stance of further monetary policy easing in December. Also, Ifo’s business climate indicator unexpectedly surged in November suggesting that the German businesses remained unaffected by the recent act of violence in Paris.
Other Currencies – Highlights
The Aussie Dollar has currently picked up momentum and is trading higher against the US Dollar, as currency traders seemed to have shifted their focus from weakness in commodity prices to comments by the RBA Governor Glenn Stevens. The RBA Governor earlier today shrugged off the impact of lower metal prices on the commodity sector and restated that the central bank sees strength in their own economy. Meanwhile, he also reiterated that there could be scope to move rates again if required. At the same time, gains in the Aussie – US Dollar currency pair remained in check as the greenback remains broadly supported by expectations that the Fed is on track to raise interest rates next month.
Later in the day, investors will turn their attention towards key US economic data releases such as revised third quarter growth numbers, house prices data and consumer confidence report to gauge further direction in the currency pair.