BoE Interest Rate Decision This Week
This new week, markets focus will shift towards Bank of England (BoE) monetary policy committee’s announcement of its interest rate decision on Thursday. The possibility of any shift in policy in the upcoming meeting is unlikely, amid deterioration of economic conditions in the beginning of the New Year. Also, the latest manufacturing and service industry survey reports in the UK and modest earnings growth in the third quarter has further dampened the case for any near-term interest rate rise.
In Europe, data showed that Spain’s industrial output growth slightly improved in November. Meanwhile, the just out latest Sentix investor confidence reading from the Euro zone declined in January. Across the Atlantic, the labour market conditions report will provide additional context following the upbeat US payrolls figure in December.
Pound Sterling – UK Markets
On Friday, a lone UK economic data had revealed that the main driver of a narrowed goods trade deficit for November was a sharp slide in Britain’s net cost of oil imports. In contrast, the UK Chancellor had last week warned that the economy is likely to face multiple risks from overseas in 2016, as growth slows in major emerging markets, stock markets tumble and a slump in oil prices reduces demand from oil-exporting nations. Also, though the UK economy has strongly recovered in the past two years, it has often struggled with export trade and Friday’s data showed little change to this underlying pattern.
Sterling has extended its recovery momentum against the US Dollar this morning, ignoring broad-based strength in the greenback and amid a data empty UK economic calendar day. The key event for the Pound this week will be the BoE’s interest rate decision meeting which will be the first gathering in the New Year. Even though no change to monetary policy is anticipated, currency traders will closely monitor votes for and against the committee’s statement for signs of a potential future interest rate rise.
US Dollar – US Markets
The US Dollar has edged higher against the shared currency this morning. Later in the day, traders will get more information about the state of the US job market through the release of labour market conditions report. Today’s update follows last week surprise delivery of a strong US labour market data for December. Data had showed that the US economy added close to 292K jobs in the last month of the year, confirming that the economy is steadily expanding on the back of a healthy job market. In addition to the job creation in December surpassing expectations, the jobs figures from the previous two months were significantly revised upwards. The unemployment rate remained steady for December. However, wages remained stagnant last month.
Of particular importance this week is a large number of US Federal Reserve (Fed) officials delivering speeches, which could bring in additional cues about their views regarding the further rate rise path following the December increase. In the line-up, Fed's Lockhart is the first to speak today on US economic outlook in Atlanta.
Euro – European Markets
The shared currency providers has slipped below the 1.09 mark against the US Dollar this morning, as the greenback remains underpinned on the back of a strong US labour market data released late on Friday. Also, the European economic docket is off to a slow start this week, with only two updates in the form of Spain’s industrial output data and Euro zone’s Sentix investor confidence that came out today with fresh perspectives to shape the outlook of the wider Euro economy. Data released earlier in the day indicated that Spain’s industrial activity expanded in line with market estimates for November. This follows sentiment data on Spain’s manufacturing sector that was released in the prior week, reflecting strong business conditions in December boosted by robust output and new orders.
In addition, the just out latest Euro zone Sentix update indicated that the mood of investment community was dampened at the start of 2016, particularly signalling the rough start of the global economies due to heightened worries about China's economy. The downbeat confidence data has added to the downward pressure on the Euro.
Other Currencies – Highlights
Today, the Kiwi Dollar rebounded from earlier losses against the greenback finding fresh upside momentum. The gains in the currency pair, however, remain limited as the US Dollar is buoyed on the back of stronger than expected US non-farm payrolls employment report published last week. Meanwhile, the currency pair might slip back into the red in the near term as the US labour market looks strong and that should eventually result in wage inflation and in turn push the Fed to tighten its policy. Last week, an unexpected drop in the global dairy prices and fears of slowing growth in China had a downside impact on Kiwi Dollar against the US Dollar. In other news, data during the weekend showed that the total number of building permits issued in New Zealand gained in November, with the number of new buildings being built in the nation nearing record levels.
Moving ahead, it is a light data week in the New Zealand. As a result, traders will continue to eye US economic news such as retail sales, industrial production and speeches from plenty of Fed officials for further direction.