BoE’s Interest Rate Decision in Focus
In Europe, industrial production in the Euro region is expected to remain subdued in March following a decline in the previous month. Earlier, data showed that French inflation ex-tobacco rose in April. Also, wholesale price inflation in Germany remained unchanged on a monthly basis in April. Going forward, investors will shift their attention towards the Bank of England’s (BoE) interest rate decision. The central bank is unlikely to act on its interest rates amid increased fears over the soon approaching Brexit referendum in June. Also on tab will be the BoE’s quarterly inflation report and a speech by BoE Governor, Mark Carney, scheduled later in the session.
In the US, investors will eye the number of persons applying for first-time unemployment benefits in the US along with multiple speeches by key US Federal Reserve (Fed) officials.
Pound Sterling – UK Markets
The Pound is trading weaker against the US Dollar this morning ahead of the BoE’s latest monetary policy decision. The BoE’s Monetary Policy Committee is expected to keep the benchmark interest rate steady at 0.50%, even as inflation remains sharply below its 2.0% target. However, today’s prime focus will be on the central bank’s quarterly inflation report, which will be published at the same time as the rate decision and minutes, amid a recent flurry of gloomy reports which provides strong evidence that uncertainty surrounding the European Union referendum is hurting the British economy. Further, the BoE Governor, Mark Carney’s post meeting speech, will be scrutinised to interpret his view on the European Union debate.
Yesterday, Sterling lost ground against its peers after the UK’s industrial and manufacturing production rose at a less than expected pace in March, further underpinning the fact that the British economy has slowed at the start of this year. Moreover, the think-tank NIESR indicated that Britain’s economy has lost momentum in the three months to April.
US Dollar – US Markets
The US Dollar logged its first drop in six sessions against the shared currency yesterday. On the data front, a report by the US Mortgage Bankers Association showed that mortgage application volumes last week recorded its first increase in the past three weeks, as applications for refinances as well as purchases rose. A separate report by the US Treasury Department showed that the US Federal government posted a budget surplus in April.
Going ahead, the US Labour Department’s weekly release on new filings for unemployment benefits will provide fresh guidance on interpreting last week’s downbeat US nonfarm payrolls data. Expectations are for the weekly jobless claims to post a decline. Additionally, the US import and export price index data for April is also due later today. Moreover, a raft of speeches by the US Boston Fed President, Eric Rosengren, the Cleveland Fed President, Loretta Mester and the Kansas City Fed President, Esther George, will be watched to decipher the Fed’s future rate increase path.
Euro – European Markets
The shared currency reversed its gains against the US Dollar and the Pound this morning after data released earlier during the day showed that Germany’s wholesale prices declined further in April, thus recording its biggest fall since November 2009 and suggesting that inflationary pressure in the Euro zone’s powerhouse economy remains muted. Nevertheless, on a monthly basis, wholesale prices advanced for the second consecutive month. Separately, French consumer prices rose in line with market expectations in April, led by higher oil prices. Going ahead, investors look forward to the Euro zone’s industrial production data for March, which is expected to post a weak print after last month’s retreat, following poor reads from major regional constituencies.
Yesterday, the Euro halted a six-day losing streak against the greenback amid a broad weakness in the greenback. Elsewhere, the European Central Bank Governing Council member, Ewald Nowotny, indicated that policy makers should not tighten the monetary policy as soon as the headline inflation reaches the targeted rate, but should seek some assurance about medium-term development.
Other Currencies – Highlights
The Japanese Yen lost ground against the greenback in the morning session, after a prominent Japanese academic indicated that the Bank of Japan (BoJ) is likely to expand its monetary stimulus programme as soon as next month. Data released earlier during the day showed that Japan’s Eco Watchers index for the country's current situation and economic outlook declined more than expected in April.
After a rough start to the week, the Japanese Yen regained its footing against the US Dollar earlier in the session after Japan’s current account surplus for March widened to its highest level in nine years, buoyed by a rise in exports. It also marked the nation’s twenty-first surplus in a row. Separately, the BoJ’s April monetary policy meeting minutes revealed that the central bank’s decision to hold monetary policy steady was taken as several board officials agreed that they should take some time to monitor the effect of the negative interest rate policy on the nation’s economy. Some of the policymakers also stressed the need to expand monetary stimulus further, if needed.