Fed to Announce its First Rate Decision in 2016
The main focus today will be on the outcome of the two-day US Federal Reserve (Fed) policy meeting and the publication of the FOMC statement later in the day. Although the Fed are unlikely to take any monetary policy action, markets will closely monitor the tone of the rate statement for signs of weakness within the US economy, given the recent turmoil witnessed across the world. On the economic data front, a report on purchases of newly built homes is due in the US later today.
In the UK, mortgage applications fell to a 7-month low in December, according to the British Bankers Association's most recent survey released just now. Earlier today, mortgage lender Nationwide reported that UK home prices rose at a slower than expected pace in January. In Europe, GfK survey results showed that German consumer confidence is set to remain steady in February.
Pound Sterling – UK Markets
Yesterday, Sterling gained further upside momentum against the US Dollar and the Euro following a speech by the Bank of England Governor, Mark Carney, before the Treasury Select Committee. A week after the BoE Chief had asserted that the central bank does not intend to increase interest rates in the near future, the Governor yesterday warned of higher interest rates if Britain voted to leave the European Union. He highlighted the risk of substantial current account deficit, which is equivalent to around 4% of national income or GDP, on the nation’s trade and investment with the rest of the world.
The Pound has nudged lower against the US Dollar this morning. In economic news, the British Bankers’ Association reported that UK banks approved the fewest mortgage applications for house purchases since May last month. Additionally, UK house prices accelerated slightly slower than market estimates for January, according to Nationwide Building Society’s latest data published earlier today.
US Dollar – US Markets
The US Dollar is trading in a close range against the Euro this morning, ahead of the outcome of the US Fed’s first monetary policy review of the New Year. The focus will be on the guidance of the central bank on the pace of interest rate rise in the nation. Expectations are that the US Fed might hold the interest rates steady, having raised it in its last meeting for the first time in nearly a decade. Considering the turbulent start to global financial markets this year and the sluggish consumer inflation rate in the US, the Federal Reserve is more likely to adopt the wait and see approach before it proceeds on the path for a gradual rate increase. In economic news, investors will today eye a report by the Housing Industry Association on the number of new houses sold in the US.
The greenback traded weaker against most of its key peers yesterday, despite the release of mostly upbeat economic data in the US. Consumer confidence and house prices in the US rose more than expected for January and November, respectively. Separately, Markit services PMI fell more than expected for January but remained in expansionary zone.
Euro – European Markets
Earlier today, the shared currency recovered most of its losses against the US Dollar. However, as market sentiment soured amid a renewed drop in oil prices as well as on an extended sell-off in Chinese stocks, the Euro halted its upbeat momentum and is currently trading almost flat against the greenback. Moreover, market participants remain cautious ahead of the outcome of the FOMC’s January two-day policy meeting later in the day, wherein the Fed is widely anticipated to keep interest rates unchanged amid recent global market headwinds.
On the macroeconomic front, the forward looking GfK survey data indicated that German consumer morale held steady heading into February, as shoppers noted modest improvement in the economic growth of the Euro zone’s largest economy and showed more eagerness to spend. The survey also showed that consumers were less confident about their earnings for the next 12 months but income expectations stayed high overall, on the back of rising wages and weak inflationary pressures. This data, however, had little influence on trading in the Euro against the US Dollar today.
Other Currencies – Highlights
The Aussie Dollar rose to two-week highs against the US Dollar today after the release of better than expected fourth quarter consumer price inflation data in Australia. Consumer prices in Australia topped market forecasts led by price rises in tobacco and domestic and international vacation travel. The rise was limited, however, by a decline in prices of motor fuels and telecommunications services. This data has reduced chances of a rate cut by the Reserve Bank of Australia in its next week’s monetary policy meeting.
Moving ahead, investor focus is now on the US Fed’s monetary policy decision and rate statement, due later today, for indications on the pace of further interest rate rise in the nation. Also, data on new home sales and MBA mortgage applications in the US will be eyed by investors for further direction. On tab later in the week is data on Australia’s import and export prices and producer price changes.