BoE Quarterly Bulletin Offers No Surprise
Today’s BoE quarterly bulletin indicates that a majority of the borrowers in the UK are unlikely to be affected by an increase in borrowing cost and strengthened prospects that high housing sector debt is unlikely to hinder the central bank’s policy stance going forward. However, market participants have shown little reaction to this publication and the Pound remained range bound against its peers. Sterling investors will keep a tab on manufacturing production numbers for October, due for release tomorrow, for further direction.
With no major macro releases scheduled across the Atlantic, the greenback is anticipated to remain supported on the back of Friday’s upbeat labour market report released in the US. Meanwhile, today’s weak German industrial production growth caused the Euro to weaken against its peers.
Pound Sterling – UK Markets
Stating that the resilience of the banking system is key for financial stability, the BOE in its quarterly bulletin released earlier today, has said that the expanding banking sector in the U.K. does not pose a threat to the British economy. The bulletin also indicated that most mortgage borrowers in the UK would be able to handle an interest rate rise of up to 2 percentage points. While this indicates the readiness of policymakers to raise rates, the Pound has shown little reaction to today’s report and remained range bound against its key peers. Later today, market participants will keep tabs on a speech by the MPC member, Martin Weale, one of the two policy hawks who have been voting for an immediate rise in the nation’s interest rate.
In Friday’s trading session, the Pound lost ground against the greenback after the release of upbeat US job additions. Separately, a survey by the BOE showed that expectations about inflation over the next 12 months in the nation have reduced.
US Dollar – US Markets
The greenback gained ground against its major peers in Friday’s trading session following the release of robust labour market report in the US. It showed that the number of non-farm payrolls increased more than anticipated for November as the hiring pace across most sectors in the US remained firm. Additionally, the report revealed that domestic earnings improved for November and fuelled expectations that the US economy is strengthening and would be able to withstand an increase in borrowing costs. With employment growth in the US remaining firm, investors will eye today’s speech by the President of the Federal Reserve Bank of Atlanta, Dennis Lockhart, which is expected to be centered around the central bank’s monetary policy.
With little on the domestic macroeconomic front, the greenback is trading on a firmer footing against the majors this morning. Going forward, traders will keep a tab on this week’s retail sales and preliminary Reuters/Michigan consumer confidence reports in the US for further direction.
Euro – European Markets
Data released earlier today showed that the pace of industrial production in Germany climbed less than expected for October. The Euro is trading on a weaker footing against the US Dollar following this release. However, today’s release was in contrast to the Friday’s robust factory orders data in Germany. Considering that factory orders takes a few months to get reflected on the domestic industrial segment, market participants remain optimistic about Germany’s macro trend going forward. Separately, another report revealed that investors’ confidence improved towards the Euro zone, amid the recently introduced stimulus measures by the ECB. With prospects of a sovereign bond buying programme in the common currency bloc early next year, it will be interesting to how sentiment towards the Euro area evolves.
Meanwhile, the common currency lost ground against the greenback in Friday’s trading session following the release of the strong non-farm payrolls report in the US. On the domestic front, Euro zone’s revised GDP report confirmed that economic growth in the region remained moderate for the third quarter.
Other Currencies – Highlights
The Japanese Yen touched multi-year lows against the greenback in Friday’s trading session after the US labour market data for November beat consensus estimates. This morning, the Japanese Yen has gained ground against the greenback despite data indicating downbeat GDP growth in Japan earlier today. This report showed that the nation’s economic growth was downwardly revised for the third quarter, particularly due to a deeper impact of the April sales tax hike on the economy.
Later this week, market participants will eye Japan’s industrial production numbers to gauge if a pickup in exports improved domestic output for October. Additionally, Japan’s snap elections scheduled over the coming weekend is likely to attract considerable interest among investors, especially with the nation’s economy entering into a recession for the third quarter.