BoE Rate Decision and the ECB Minutes in Focus
Today’s session will be dominated by news from the central banks in the UK and Europe. The Bank of England (BoE), later in the day, will publish its new monetary policy statement and announce its rate decision, although no major surprises are anticipated by the UK’s central bank. Market focus will likely be on the accompanying meeting minutes for cues that Britain’s macro trend is still on course for moderate economic growth. The European Central Bank’s (ECB) account of the December monetary policy meeting is also due today and it would attract greater market interest if the change in the current macro conditions is recognised by the central bank.
Across the Atlantic, a weekly update on unemployment claims, scheduled later today, could stir some market interest.
Pound Sterling – UK Markets
This morning, Sterling has surrendered most of its previous session gains against the US Dollar as markets anticipate that the BoE will not spring any new surprises later today at its monetary policy meeting. They expect that the BoE will keep the benchmark interest rate steady at a record low of 0.5% while also maintaining the asset purchases programme unchanged. The minutes which will be released alongside the BoE rate statement could signal that most of the developments since the last meeting seem to be pushing the UK economy towards disinflationary territory. The Pound has had a poor start to 2016, plagued by disappointing domestic economic data and concerns regarding the growing possibility of Britain exiting the European Union. Also, recent intensified fears of a global growth slowdown triggered by turmoil in the world’s second largest economy, China, is likely to have clouded the prospects for a UK interest rate rise.
Yesterday, a broadly weak greenback boosted the Pound - US Dollar currency pair well above the 1.44 mark in late trading session.
US Dollar – US Markets
The greenback has recovered from most of its previous session losses against the Pound this morning, amid weakness in Sterling on declining prospects of an imminent BoE rate rise. In the US, investors will look forward to today’s weekly report on jobless claims to gauge the health of the nation’s labour market at the start of the New Year. Expectations are for the claims to slightly decline in the first week of 2016, suggesting that the overall trend is likely to remain intact for the robust growth of the US job market.
The Federal Reserve’s Beige Book, published yesterday, reported that most of the districts in the US continued to experience moderate pace of economic growth activity from late November to early January. The report also indicated that although consumer spending and labour market continued to grow steadily in the US, other sectors such as manufacturing, agricultural and energy remained on a weaker side. On the macro front, recent weekly data showed that the number of home applications sharply rebounded due to a decline in mortgage rates and strong jobs growth in the final quarter of last year.
Euro – European Markets
The common currency providers extended its gains against the US Dollar this morning, after economic data released earlier today indicated that the German economy expanded at the strongest rate in four years in 2015, boosted by an increase in household spending.
Later in the day, the ECB will present its accounts of the December monetary policy meeting. ECB Chief, Mario Draghi, had earlier announced a cut in the deposit rate and extended the period of quantitative easing for another six months. The announcement had underwhelmed market expectations concerning the introduction of new stimulus measures to spur growth in the wider Euro zone economy. The minutes of the December meeting, which are scheduled later in the day, will be eyed by market participants for clear signals from the central bank about its future course of action. In separate statements, the ECB officials since the last meeting have reaffirmed that the door is open for further easing. Meanwhile, fresh oil price weakness at the start of 2016 is likely to have lowered the bar for further ECB easing.
Other Currencies – Highlights
Australia’s labour market surprised again with a robust result earlier today, as job growth only fractionally dipped for December, dousing fears of a large drop. The dip was only minor given the exceptional growth seen in employment over the previous two months. Additionally, the Australian unemployment rate was stable for December confounding expectations of an uptick. The months leading up to December indicate that the nation’s labour market has improved and the Australian economy is on a much stronger footing than initially thought. The Reserve Bank of Australia is likely to get encouraged by the strong finish to the year for the jobs market and resist pressure of an additional interest rate cut for some time in the New Year.
The Aussie Dollar initially edged higher against the US Dollar following the impressive labour market print, but it quickly gave back gains amid concerns surrounding a slowdown in the China’s economy and as market participants continued to focus on the oil prices movement.