ECB’s Interest Rate Decision in the Spotlight
The European Central Bank’s (ECB) interest rate decision will rule the roost today. With no changes expected to be made to the historically low interest rates, investors will eye the central bank President, Mario Draghi, for his statement accompanying the decision, scheduled later in the day. In Britain, the just out construction PMI unexpectedly dropped in May as construction orders declined to its weakest level since April 2013 last month. Further ahead, a speech to be given by the Bank of England (BoE) Governor, Mark Carney, will attract a lot of market attention.
Across the Atlantic, the US weekly jobless claims and the ADP employment change data for May will be closely watched along with speeches by two top US Federal Reserve (Fed) officials, namely the Governor, Jerome Powell and the Dallas Fed president, Robert Kaplan.
Pound Sterling – UK Market
The Pound has staged a minor relief against the US Dollar this morning amid a broad-based weakness in the greenback after having slumped in the previous two trading sessions. The just out data showed that the UK’s construction PMI surprisingly declined in May with output growth easing to its weakest level in almost three years. Moving ahead, market participants will focus on the BoE Governor, Mark Carney as he will be delivering a speech later in the day.
Yesterday, Sterling plummeted against its major peers, led by a sudden resurgence of popular support in favour of the Brexit campaign. Moreover, markets ignored the upbeat UK manufacturing PMI data, which unexpectedly returned to expansion in May, after posting a shock contraction in the previous month. Meanwhile, the OECD joined the list of international bodies in predicting a grim verdict on Britain’s economic future outside the European Union (EU) and indicated that such an event will also send economic shock waves across the world. The organisation also slashed its 2016 growth forecast for the UK.
US Dollar – US Markets
The greenback ended lower against the Euro yesterday on fresh doubts about a rate rise in June by the US Fed, following a couple of weak economic data releases in the US. Data showed that the nation’s construction spending surprisingly plunged to a five-year low level in April, dragged by declines in housing, commercial construction, and spending on government projects. Also, the Markit manufacturing PMI dropped for the first time in over six and a half years in May, compared to the previous month’s reading, mainly led by a drop in production volumes. The US dollar briefly pared losses after the ISM manufacturing index indicated that the US manufacturing sector expanded for the third consecutive month in May. Separately, the US Fed’s latest Beige Book report indicated modest growth across most regions and noted that inflation is on track to rise and the labour market is improving. Meanwhile, the OECD downgraded its US growth forecast for this year.
Looking ahead, investors await the US weekly jobless claims and the ADP employment report for May, due later today.
Euro – European Markets
The shared currency is trading higher against the US Dollar and the Pound this morning, ahead of the ECB’s interest rate decision, scheduled to be announced in a few hours. While the central bank is widely expected to not make any major changes to its current policy stance, the ECB President, Mario Draghi, will likely reiterate that the central bank will not hesitate to act if economic conditions, namely growth and inflation indicators, dip further. The Euro zone’s key interest rate has been held flat for the past two months but growth and inflation levels still remain soft. This fact was further underscored earlier this week after German retail sales and the Euro zone flash CPI estimate continued to post declines in April and May, respectively this year.
On the data front, the Euro area’s producer price index, due in some time, is expected to post a slower growth in April. Earlier today, data showed that the number of people unemployed in Spain fell more than expected in May.
Other Currencies – Highlights
The Swiss Franc has extended its previous session gains against the greenback this morning. Earlier in the session, a report released by Switzerland’s State Secretariat for Economic Affairs showed that the Alpine economy grew at a slower than expected pace in the first quarter, with activity being held back by a drop in government spending. However, the other components including consumption expenditure from the private sector and investments in construction and equipment posted robust growth. Moreover, Swiss real retail sales further declined in April. Sales have been falling since August last year and the latest decline was the biggest in the trend. On the other hand, the nation’s SVME Purchasing Managers’ Index surprisingly advanced in May, rising for the fourth consecutive month.
Looking ahead, market participants eagerly await the release of Switzerland’s consumer price index and unemployment rate data, both for the month of May, due next week.