Focus on BoE Policy Meeting
The monetary policy meeting of the Bank of England is likely to attract significant market attention. With markets widely anticipating that the UK central bank will retain its current monetary policy stance, comments by committee members will be noted to gauge their views on growth amid heightened uncertainty surrounding the Euro zone. The Pound may rally if the BoE adopts a more upbeat tone in the wake of rising wages and robust growth in the nation’s service sector.
Meanwhile in Europe, traders will closely monitor developments in Greece and commentaries from Greece’s creditors. Across the Atlantic, the weekly report on new unemployment filings will attract some attention.
Pound Sterling – UK Markets
The Pound plunged against the US Dollar yesterday, while it fell to a multi-week low against the Euro. Chancellor George Osborne unveiled the first all-Conservative budget in the House of Commons yesterday in which he set out his plans for tax and spending. The Pound extended its losses after the Chancellor announced a reduction in the growth forecast for 2015 from 2.5% to 2.4%. Guidance from the Office for Budget Responsibility indicates steady economic expansion over the next five years.
Data released earlier today showed that UK house prices, as reported by the Royal Institution of Chartered Surveyors, rose at the fastest pace in eleven months for June amid supply constraints in the property market. Although recent domestic economic releases have had limited impact on trading in the Pound-Euro currency pair with the Greek crisis dominating sentiment, the Bank of England’s policy meeting today will draw significant market attention. While no change in the policy is anticipated in today’s meeting, comments from policy makers will be noted for any cues on the BoE’s future course of action.
US Dollar – US Markets
The US Dollar traded broadly higher against its major currency counterparts yesterday, before the release of the Fed minutes, as uncertainty surrounding Greece’s future in the Euro zone and the turmoil in the Chinese equity market supported demand for the greenback. The minutes of the US Fed’s last monetary policy meeting revealed that a majority of policymakers are against a premature interest rate rise and want to see more positive data before raising rates. Meanwhile, Fed members expressed concerns about weakness in US consumer spending, the impact of an early rate rise on economic growth and the effects of the ongoing Greek crisis on the economy. The US Dollar softened against its peers following the release of the FOMC minutes. Also, San Francisco Fed President John Williams yesterday reaffirmed his view that the Fed will tighten policy this year, adding that he personally favours two rate rises before the end of the year.
The greenback is trading marginally lower against the Pound this morning. Investors will today anticipate the weekly jobless claims data for cues about the health of the labour market.
Euro – European Markets
The Euro is trading on a weaker footing against its key peers this morning. Economic data released earlier in the day showed that German trade surplus for May came in lower than market expectations. The Euro, which was trading in positive territory against the US Dollar initially, moved lower after the release. While German exports registered an unexpected growth in May, reigniting hopes that the Euro zone’s largest economy will grow at a stronger pace in the second quarter after expanding moderately in the first three months of the year, imports rebounded and led to a narrower trade surplus for May.
The shared currency recovered sharply across the board yesterday, amid optimism that the Greek government and its international creditors will reach an agreement on a new deal to unlock financial aid by the Sunday deadline. The optimism was fuelled after the new Greek finance minister Euclid Tsakalotos submitted a request for a new three-year rescue programme to its European partners, wherein the Greek government has vowed to immediately implement a set of reform measures as early as the beginning of next week.
Other Currencies – Highlights
The Australian Dollar recovered part of its losses against the US Dollar after the FOMC minutes yesterday pushed back expectations of an interest rate rise. The sentiment towards the Australian Dollar further improved and the Australian Dollar–US Dollar pair extended its upward momentum in today’s trading after data showed that Australia’s unemployment rate rose less than expected for June, while the May figure was revised downwards. The rise in the jobless rate was driven by an increase in the participation rate and a decline in part time employment. On the positive side, the number of fully employed people in the nation recorded an increase.
With no further notable releases on the domestic macroeconomic front today, trading in the Australian Dollar–US Dollar currency pair will be influenced by US jobless claims data and geopolitical factors. Going forward, Australia’s home loans data will be noted tomorrow, to gauge the trend in the housing market and the level of consumer confidence in the nation.