The minutes of the latest US Fed policy meeting released yesterday strengthened prospects of a delay in raising interest rates amid concerns about the elevated value of the greenback and weak global economic outlook, thereby supporting high yield assets across the board. Market attention has now shifted to today’s BoE policy meeting where the central bank is likely to keep its policy stance unchanged. Two policymakers are expected to continue their support for an immediate rate rise, although prospects of other officials joining the bandwagon seem limited, especially considering the recent mixed economic data.
In Europe, today’s trade numbers in Germany and France have been weak, making the situation a little trickier for the ECB President who is scheduled to speak later today.
Pound Sterling – UK Markets
The Bank of England, in its policy meeting today, is expected to keep its key interest rate and asset purchase programme unchanged at current levels. However, uncertainty among investors is heightening over the timing of an interest rate rise, especially after the IMF kept its growth outlook on Britain unchanged and suggested that the BoE should consider tightening its monetary policy citing risks posed by the overheating domestic housing market. The Halifax report released yesterday also confirmed the rising trend in UK house prices for September. However, the recent set of mostly mixed economic data in the UK is unlikely to usher confidence among MPC members to adopt a tighter monetary policy any time soon.
The Pound gained ground against the greenback in yesterday’s trading session and breached the 1.61 mark after the FOMC minutes showed that the US Fed plans to keep interest rates low for a considerable period of time in the world’s largest economy.
US Dollar – US Markets
The minutes of the latest Fed policy meeting released yesterday poured cold water on hopes that the central bank might raise its key interest rate sooner than expected. The minutes revealed that the Fed plans to keep interest rates low for a prolonged period, with policymakers raising concerns about the elevated value of the greenback and the slowing economic growth in various parts of the world which might adversely impact the US economy. The latest FOMC minutes dampened expectations of a rise in the benchmark interest rates anytime soon, thus triggering a sell-off in the US Dollar against the majors during yesterday’s trading session.
Meanwhile, traders will continue to keep a tab on speeches from various US Fed officials due later today for further direction to risk appetite. Separately, US initial jobless claims data is anticipated to show a less than 300K jobless claimants for the fourth straight week. Additionally, the US Dollar is expected to take direction from developments in other major economies during the course of this week’s trading session.
Euro – European Markets
Data released earlier today showed that German trade surplus narrowed for August, as exports from the nation declined at a faster than anticipated pace. Additionally, another report released today revealed that France witnessed similar trading conditions for August. Today’s trade figures have highlighted that core Euro zone economies have failed to capitalise on the recent weakness in the Euro, largely pressured by geopolitical troubles in Eastern Europe. Separately, the ECB monthly bulletin failed to address investor concerns about a potential deflationary threat in the Euro bloc. Furthermore, with the ECB President, Mario Draghi, scheduled to speak later today, markets will keep a tab on his comments to gain further insights into the central bank’s next policy move, particularly after the ECB Chief offered no hints about further easing measures last week.
In yesterday’s trading session, the Euro gained ground against the greenback and rose above the 1.27 mark after the US Fed minutes of the last policy meeting showed that the central bank is in no hurry to raise interest rates.
Other Currencies – Highlights
The Australian Dollar has continued to trade on a firmer footing against the greenback this morning after the dovish tone of the latest FOMC minutes weakened hopes of an early interest rate rise in the US. Meanwhile, markets shrugged off today’s mixed Australian labour market data. The report revealed that gains in full time employed people were offset by losses in part time jobs, but a rise in the nation’s unemployment rate was less than anticipated for September. However, concerns continued to build up about the declining participation rate in the nation’s labour force. Separately, the Reserve Bank of Australia official, Luci Ellis, warned about the overheating domestic housing market by highlighting that a major demand for new homes in Australia is coming from investors rather than occupiers.
With no other domestic economic releases scheduled today, the Australian Dollar is expected to take direction from tomorrow’s home loans data. Additionally, with speeches from various US Fed policymakers scheduled later today, any volatility in the Aussie Dollar against the majors cannot be ruled out.
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