BoE Governor Says Rate Rise Inching Closer
The BoE Governor last night provided further clarity on the course of interest rate movement and hinted that a rate rise could be expected by the end of this year. Amid an absence of noteworthy economic releases in the UK today, focus will be on next week’s releases of minutes of the last BoE policy meeting, public sector borrowings, retail sales and BBA mortgage approvals data.
Trading in the currency market today will primarily be influenced by US economic updates. CPI data in the US is expected to show a slight increase in inflationary pressures for June, thus fuelling hopes of a near term interest rate rise. Also of interest are the University of Michigan’s consumer sentiment index and housing market related data. In Europe, the German Parliament is expected to show its support for Greece’s third bailout deal.
Pound Sterling – UK Markets
The BoE Governor Mark Carney has drawn market attention back onto interest rates at a time when concerns surrounding Greece have eased. Yesterday, in the strongest signal yet, the Governor stated that interest rates could finally start to rise by the end of this year. He indicated that rates are expected to increase at a gradual pace over the next three years to about half the historical average. The Pound gained traction against the Euro last night following the BoE Chief’s remarks.
The Pound is trading on a firmer footing against its major currency counterparts this morning. Today, trading in the Pound is likely to be influenced by global macroeconomic news, amid the absence of any significant economic releases in the nation. Next week, minutes of the latest monetary policy meeting will be in focus in the UK. In economic data, investors will keep a tab on a string of domestic releases in the coming week including public sector net borrowing data, Confederation of British Industry’s distributive trade survey, retail sales and housing market related data.
US Dollar – US Markets
The US Dollar is trading on a weaker footing against the major currencies this morning, ahead of a raft of economic releases in the US later today. Among the important releases are the US consumer price inflation and the flash Reuters/Michigan consumer sentiment index. The annual inflation figure is expected to print in positive territory for the first time since December last year and the core measure is estimated to have ticked higher in June. Any positive surprise in the inflation rate is likely to strengthen expectations of the Fed raising rates this year. Additionally, markets will keenly await the preliminary consumer sentiment in the nation for July, which is expected to remain at elevated levels. Apart from these releases, housing market updates on housing starts and building permits are due later today.
Yesterday, the greenback trimmed part of its gains against the Euro after a report showed that manufacturing activity in the Philadelphia region expanded at the slowest pace in four months for July and well below market expectations.
Euro – European Markets
The Euro is looking for direction against the Pound this morning, while the single currency has edged higher against the US Dollar. The only European economic release that will be out shortly is the Euro zone’s construction output data for May, which is expected to attract limited market attention. With concerns of Greece exiting the Euro bloc easing, market participants look forward to the commencement of negotiations between European officials on a three year bailout programme for the cash strapped nation. Meanwhile, market attention today will be on whether the German Parliament gives the green light for the rescue deal to go ahead.
Yesterday, the common currency recovered some of its losses against its key peers after the European Central Bank agreed to increase its assistance to Greek banks. The ECB increased its emergency funding and approved €7 billion in bridge loans to Greece, thus fuelling a relief rally.
Other Currencies – Highlights
The US Dollar–Canadian Dollar currency pair continues to trade close to multi year highs recorded in the mid of this week following the Bank of Canada’s decision to slash the interest rate for the second time in six months. The Loonie is at a risk of further decline against the US Dollar, if Canada’s consumer price inflation data scheduled later today disappoints. On the other hand, the Canadian Dollar might regain its footing if the headline CPI reading for June beats expectations. The Bank of Canada could come under further pressure to implement additional monetary easing if data shows reduced pricing pressures in Canada.
The Canadian Dollar is currently trading in a tight range against the US Dollar this morning. A set of noteworthy US economic releases later today are also expected to impact trading in the currency pair.