BoE to Release Financial Stability Report
The Bank of England (BoE) releases today its financial stability report, which will be followed by a press conference with the BoE’s Governor Mark Carney. Analysts suggest that Carney will repeat the need for cautiousness, regarding the raise of interest rates because of the condition of the British economy. Two members of the BoE’s Monetary Policy Committee have already talked in favour of raising borrowing costs in the past week.
Mario Draghi delivered a speech in a European Central Bank (ECB) forum in Portugal, in which he reiterated the need for a considerable degree of stimulus in the Eurozone. However, economists said that he chose his words carefully, since he didn’t use the “very substantial stimulus” expression, as he was doing in the past. The change in Draghi’s rhetoric made the Euro jump above the $1.12 mark.
Pound Sterling – UK Markets
Today, Sterling gained small ground against the US Dollar with the exchange rate set at $1.27. The British Pound weakened against the Euro, trading at €1.13.
The Financial Policy Committee of the BoE will release its latest financial stability report (FSR), followed by a press conference with Governor Mark Carney. The FSR is published twice a year by the BoE and it represents an assessment of the outlook for the stability and resilience of the financial sector. In the report, the Financial Policy Committee suggests actions that can help reduce risks to stability. Market analysts believe that Carney will talk, once more, against the potential tightening of the BoE’s economic policy. They also suggest that the BoE may advise City banks to reduce their lending and start restocking their capital buffers.
A YouGov poll suggested that consumer confidence in the UK dropped to its second lowest level since the summer of 2013, following the parliamentary elections. YouGov’s head, Stephen Harmston, noted that the hung UK parliament and the cooling of the property market have harmed consumers’ confidence.
US Dollar – US Markets
The US Dollar slumped against the Euro with the exchange rate set at €0.89. Today, news regarding the US economy will be coming from Europe, and, more specifically, London.
Janet Yellen, the Chair of the US Federal Reserve, will speak in the evening in a UK forum, sharing her views on global economy. Investors and traders expect from her to defend the outlook for three interest rate hikes this year, despite some weak data released, regarding the condition of the US economy. In the last days, some Fed members suggested that the third interest rate raise in 2017 could be delayed because of low inflation. Yellen will take questions and experts say that her answers may indicate if the Fed is changing or not its plans.
The US Commerce Department imposed preliminary anti-dumping duties on Canadian softwood lumper of up to 7.7%. The Canadian government reacted angrily by calling the duties “unfair and punitive.” US producers complained that their Canadian rivals procure their timber from Canadian government lands at cheaper rates. Canada’s government denies that it subsidizes producers. The two countries, with the addition of Mexico, are preparing to renegotiate the NAFTA treaty.
Euro – European Markets
The Euro rallied against the US Dollar, with the exchange rate set at $1.12. Today Mario Draghi, the Italian head of the European Central Bank (ECB), delivered a speech, in an ECB Forum in Portugal.
Draghi appeared confident and optimistic saying that recovery across the Eurozone is strengthening and broadening. The ECB’s president stressed that there have been 16 consecutive quarters of growth, but noted that growth must become sustainable. Draghi agreed that inflation in the Eurozone is lower than expected, but he added that all ECB policies have as a purpose to build up reflationary pressures. The Italian banker said that the ECB’s plan is, through its monetary policy, to lift inflation by 1.7%, between 2016-2019.
The ECB’s president had also talked yesterday in front of an audience of university students in Lisbon, defending the ECB’s monetary policy. Draghi said that low rates create jobs, foster growth and benefit borrowers. Answering to a student’s question, Draghi said that growing inequality in the EU is highly destabilising and needs to be tackled with education, innovation and investment in human capital.
Other Currencies – Highlights
The British Pound slumped against the Australian Dollar, trading at 1.67 AUD. The Aussie’s value increased on news that Chinese industrial profits scored gains in May. The Australian economy is linked with the Chinese one because of the vast quantities of raw materials it exports there. The Assistant Governor of the Reserve Bank of Australia (RBA), Guy Debelle, will be speaking later today to shed light on the RBA’s monetary policy approach.
Sterling dropped against the New Zealand Dollar, trading at 1.74 NZD. The Kiwi strengthened despite the fact that the New Zealand’s trade balance data showed a massive reduction in the country’s trade surplus because of higher than expected rise in imports. Relatively high interest rates and a sturdy economic growth seem to support the New Zealand Dollar.