Carney Speech in Focus
Among noteworthy events today, Mark Carney, The Governor of the Bank Of England, is expected tospeak about the impact of Britain’s membership in the EU on the bank’s monetary policy and financial stability. This would be BoE Chief’s first intervention ahead of the referendum assured by the UK Prime Minister by the end of 2017. However, the Governor yesterday downplayed the significance of his speech but his remarks will be closely monitored for his opinion on the issue. On the data front, the just out publication revealed that UK’s budget deficit for September was the smallest in eight years.
Across the Atlantic, weekly mortgage applications data could attract some investor attention. It is a light calendar day in Europe today with markets focused on tomorrow’s ECB rate announcement meeting.
Pound Sterling – UK Markets
The Pound lost some ground against the US Dollar yesterday. Sterling’s poor performance could be partly attributed to news which indicated that the UK steel industry could be facing more than thousand fresh job losses. A stronger home currency and China flooding the global market with cheap variants of steel have added to the mounting pressure on the domestic steel industry and the economy, which has dampened expectations of a near term interest rate rise by the BoE.
In focus today will be a speech by the BoE Governor, Mark Carney, outlining the central bank’s analysis of the possible pitfalls that can result if Britain exits from the European Union. The UK central bank will also publish a report on the same issue around the same time when the Governor delivers the key speech. On the macro economic data front, just out data indicated that UK government’s debt narrowed more than market forecasts for September as tax receipts from businesses and individuals rose to records. The data follows a sharp increase in public sector borrowing in August and upward revisions to borrowing over April to July.
US Dollar – US Markets
The US Dollar has made moderate gains against the Pound this morning. In another slow day for US economic releases, market participants will keep a tab on today’s update on the US mortgage filings in the last week for more evidence to assess the state of the nation’s housing market. Views that the nation’s residential industry continues to strengthen got additional support after data yesterday showed that new home construction in the US climbed in September. Housing starts surged above market expectations for the previous month, to close at the second highest level in eight years. The data was in line with a report published earlier this week that showed builders are increasingly confident about the outlook for their industry. Meanwhile, building permits fell more than estimates in September.
In the wake of growing optimism and robust gains in housing construction activity, markets will look forward to today’s mortgage applications data to offer further support to the rosy outlook. Also, growing expectations that the US Fed is close to raising rates might have fuelled demand for home loans in the nation.
Euro – European Markets
The shared currency is trading higher against the major currencies this morning, ahead of the European Central Bank’s interest rate decision meeting tomorrow. The release of a slew of poor data from major Euro zone economies such as Germany have added to expectations that the ECB President, Mario Draghi could tomorrow prepare the ground for further stimulus measures. The Euro's downside might be limited as that outcome seems already been priced in. There could be some volatility if the ECB Chief adopts a less than anticipated dovish tone in tomorrow’s meeting.
Economic data released in the Euro zone yesterday offered additional evidence that the ECB will call for further easing of its monetary policy after German producer prices printed deeper into deflationary territory, signalling lack of price pressures in the economy. In separate data, Euro zone current account surplus narrowed in August. Today, the European docket looks void of any significant data prints to trigger volatility in the Euro against its key peers.
Other Currencies – Highlights
The New Zealand Dollar has extended its losses to trade on a weaker footing against the greenback this morning. The currency pair pulled out of a strong rally yesterday after the Global Dairy Trade auction showed a decline in the GDT price index accompanied by a contraction in whole milk producer prices. Adding to the negative sentiment, New Zealand’s diary major Fonterra’s credit rating was downgraded today which has further accentuated the downside in the currency pair. The slump in diary prices is likely to put the Reserve Bank of New Zealand under further pressure as it has already been struggling with lack of inflationary pressures in the nation and a strong domestic currency. The possibility of another rate cut by the New Zealand central bank could be factored in. Market attention will now shift towards RBNZ’s interest rate decision meeting scheduled next week.
Later in the day, currency traders will eye US economic data and monitor developments in the global economy for further direction.