BoE Governor and US Economic Data in Focus
In the absence of significant macro updates in the UK today, market focus will likely be on the testimony about the nation's financial sector to be given by the Bank of England (BoE) Governor, Mark Carney, scheduled in a short while. Given the very dovish speech delivered by the BoE Chief last week, it is unlikely that he will offer any fresh hints to investors who are looking forward to a rate lift-off.
The US Federal Reserve (Fed) will also begin its two-day monetary policy meeting today after the previous month’s long anticipated rate increase. On the macro front, US house prices, CB consumer confidence and preliminary services sector activity data will be released today which will provide new insights regarding the likely impact of recent turmoil in the global economy on activity in the first quarter of 2016.
Pound Sterling – UK Markets
This morning, Sterling remains pressured against the US Dollar amid dampened market sentiment in the wake of a renewed slide in oil prices. Moreover, market participants are likely to tread cautiously ahead of the testimony on the Financial Stability Report to be given by BoE Governor, Mark Carney, before the Treasury Select Committee later today. Traders will monitor his speech for cues on the central bank’s policy stance and his assessment of the economic growth outlook just weeks before the publication of the BoE’s next quarterly inflation report which could have an influence on the monetary policy expectations. Last night, the BoE policymaker Kristin Forbes highlighted her belief that the recent decline in oil prices allowed the committee more time to evaluate whether the latest fall in the jobless rate will eventually lead to a pickup in wage growth.
In economic news, UK manufacturers reported a fall in orders at the beginning of the New Year due to weak demand from overseas, according to the industrial trends survey of the Confederation of British Industry released yesterday.
US Dollar – US Markets
The greenback traded lower against most of the major currencies yesterday. Market participants are focused on the US Federal Reserve’s policy meeting later this week. Expectations are that the US Fed might hold interest rates steady after raising them for the first time in almost a decade in December. On the macroeconomic front, data showed that the Dallas Fed’s manufacturing business index unexpectedly plunged deep into contractionary territory for the thirteenth consecutive month. On the back of mostly dismal economic data this year, this has raised fears about growth in the nation.
The US Dollar has recovered most of its losses against the Pound this morning ahead of a slew of economic releases. In the US, investor focus will be on preliminary services PMI index, consumer confidence report, housing price index and Richmond Fed’s manufacturing index scheduled for release later in the day. Upbeat data might strengthen the case for further rise in interest rates in the US Fed’s upcoming policy meeting tomorrow. However, disappointments will further raise fears about economic growth in the New Year.
Euro – European Markets
The shared currency is trading in a tight range against the greenback this morning, however, the pair continues to trade above two-week losses hit in the previous week. The gains in the pair appear to be limited as demand for the US Dollar remains intact ahead of the US Federal Reserve’s monetary policy decision scheduled tomorrow. As of today, the economic data calendar in Europe is empty. As a result, the Euro traders will probably continue to track sentiment in global markets today for further direction. Also, market focus will primarily be on the US data deluge, due later in the day.
Yesterday, the President of the European Central Bank (ECB) spelled out the benefits of the central bank’s current policy stance in a bid to counter criticism of the policy. Speaking in Frankfurt, the ECB Chief Mario Draghi defended his decision to cut rates at record lows and buy financial assets, stating that the bigger risk was doing nothing. The ECB board members now have less than seven weeks before the March meeting to decide whether the current asset purchase programme and negative rates are enough to achieve its inflation goal.
Other Currencies – Highlights
The New Zealand Dollar is trading on a weaker footing against the US Dollar today with investors trading cautiously as riskier assets retreated amid renewed selling in oil markets. The economic calendar in New Zealand is empty today and much of investor focus is on tomorrow’s interest rate decision in New Zealand and the US. Following the previous week’s government report, which indicated that consumer prices fell in the fourth quarter of the previous year due to collapse in oil prices and slow global growth, it is likely that the Reserve Bank of New Zealand will cut its benchmark interest rate by 25 basis points in its monetary policy meeting tomorrow.
Across the Atlantic, investor focus will also be on the US Fed’s monetary policy meeting that is more likely to see the central bank holding interest rates steady after raising them for the first time in nearly a decade in December.