Euro zone CPI and Fed Chief’s Speech on Radar
In Europe, today a flash estimate of Euro zone CPI is anticipated to indicate that the headline inflation was up in November compared to a year ago. The data will come ahead of tomorrow’s policy announcement, wherein the European Central Bank (ECB) President is widely expected to introduce a fresh stimulus including more asset purchases and a cut to the deposit rate. Across the Atlantic, multiple appearances by the Federal Reserve (Fed) Chairwoman Janet Yellen this week could influence market expectations about the course of future rate rises. On the data front, the ADP employment report will be eyed by investors for more cues regarding the strength of the US job market.
In the UK, the just out data revealed that construction growth slowed to a seven month low in November, following weakness in housing activity.
Pound Sterling – UK Markets
The Pound pared earlier gains against the US Dollar and the Euro yesterday after domestic PMI data weighed on Sterling. Growth in UK’s manufacturing activity slowed more than forecast for November, suggesting weakening momentum in the sector. The Bank of England (BoE) will have a further reason to push any potential rate increase into the spring of 2016, if a combination of subdued growth and weak price pressures are reflected in other sections of the economy. But losses in Sterling against the US Dollar were limited as the BoE Governor following publication of positive results from the BoE stress test stated no new wave of capital regulation was scheduled immediately for banks. However, he refrained from discussing about the economy or monetary policy in his speech yesterday.
Looking into other core areas of the UK economy, the just out release of the nation’s construction PMI saw a more than anticipated decline in its reading for November. The fresh data is likely to make the market participants more cautious about the pace of UK economic growth in the final quarter of 2015.
US Dollar – US Markets
The US Dollar has recovered some of its losses against its major currency counterparts this morning, as market participants wait on the sidelines ahead of speeches by Fed officials, including Fed Chairperson Janet Yellen later in the day. She will be making two separate appearances today and will also testify in front of the Congressional Joint Economic Committee tomorrow. A number of other US central bank officials are also scheduled to speak this week. However, the Fed Chief will draw significant market attention for her views on risks to the nation’s economic outlook and for further indication about what will happen to monetary policy after the initial tightening in the central bank’s policy meeting this month. Market chatter has gone beyond the December rate rise to the pace of rate increases that will follow.
Aside from the Fed Chief’s speeches today, the ADP report on private sector payrolls will also be in focus in the upcoming session as investors look for more evidence of stronger employment growth. The release will bring in additional context for confirming that the central bank would start squeezing policy before the end of this year.
Euro – European Markets
The Euro has nudged lower against the greenback this morning. Yesterday, the shared currency was supported against the major currencies after a surprisingly upbeat data in the Euro bloc had suggested that the wider economy could have set the stage for stronger recovery in the final quarter of the year. However, hopes were short-lived as the common currency was again pulled lower against the Pound and the US Dollar amid expectations that the ECB will expand the local currency weakening stimulus at its monetary policy meeting tomorrow.
Before the ECB announcement, investor focus will today be on Euro zone’s flash estimate of consumer price inflation for November which is scheduled in a short while. Expectations are for the headline inflation rate to tick up in November, suggesting that the deflation risk is receding across the nations that share the Euro. If the prediction holds, the modestly firmer pace of CPI could paint a slightly brighter outlook but it would not be enough to change policymakers’ minds due to persistent economic weakness.
Other Currencies – Highlights
Earlier today, the Aussie Dollar briefly edged higher against the US Dollar after the release of robust domestic GDP report. The growth data revealed that Australia’s economy expanded at a faster than estimated pace for the third quarter as commodity exports surged the most since the same quarter of 2000. However, the picture inside Australia was less optimistic as domestic demand contracted to record its biggest decline since 2009. In addition, the Reserve Bank of Australia (RBA) Governor’s remarks came alongside the nation’s GDP data, describing the growth figures as slightly above the central bank’s forecasts. He reiterated that the outlook is for continued moderate growth in the Australian economy and highlighted that the nation has made a positive transition from its dependence to the mining sector. Earlier this week, the RBA left its interest rate steady. However, the board reinforced that it was open to further policy easing given Australia’s weak inflation.
Meanwhile, the Aussie Dollar has currently trimmed part of its gains against the US Dollar as the greenback remains buoyed by hopes of a December Fed rate rise.