Focus on The BoE’s Interest Rate Decision
Today, the Bank of England (BoE), in its first monetary policy meeting after the European Union (EU) membership referendum, is expected to cut the key interest rate for the first time in almost seven years, in order to prevent the economy from further deteriorating in the wake of UK’s surprise vote to leave the EU. The BoE Governor, Mark Carney, had earlier dropped hints of a possible rate cut. The minutes of the bank’s meeting will give a glimpse of the board members’ thoughts on UK’s current economic situation.
The Eurozone economic calendar is devoid of any significant macroeconomic releases today. Across the Atlantic, weekly data on the number of Americans filing for unemployment benefits will be on traders’ radars. Also, a report on US producer price inflation will be on tab.
Pound Sterling – UK Markets
The Pound, which fell to a 31-year low after the Brexit vote, has regained some ground gradually and was trading at a fresh intraday high around the crucial 1.32 mark against the US Dollar during the morning session. Market participants will remain on their toes ahead of a closely watched monetary policy decision by the BoE scheduled later today. The central bank is widely expected to cut the benchmark interest rate for the first time in more than seven years in the wake of the last month’s EU referendum that has raised the possibility of an economic slowdown in the UK and the Eurozone. Additionally, a fresh round of quantitative easing seems likely as well.
Overnight data revealed that as per a survey released by the Royal Institution of Chartered Surveyors, house price balance in the UK recorded its lowest reading in June since January 2015 as uncertainty in the run up to the UK’s decision to exit the EU weighed on the nation’s housing market activity, and is projected to dampen the market over the next few months.
US Dollar – US Markets
The greenback lost ground against most of its major peers yesterday. The Federal Reserve’s (Fed) Beige Book survey of economic conditions shed light on the US economy that it has continued to expand at a modest pace from mid-May through the end of June in nine of its twelve Fed districts, although it did not provide ample evidence to the central bank to increase interest rates in the near term. Notably, the Dallas Fed President, Robert Kaplan, indicated that it is appropriate to raise interest rates gradually and carefully, signaling his reluctance to increase interest rates. He further stated that boosting the nation’s growth is the most important issue. In other economic news, the nation swung to budget surplus in June, while MBA mortgage applications rose in the last week.
The greenback is trading on a weaker footing against the Pound and the shared currency this morning. Moving ahead, market participants will focus on the US weekly initial jobless claims and producer price index data along with Fed’s Dennis Lockhart speech, scheduled to be released later in the day.
Euro – European Markets
The shared currency is trading mixed against the US Dollar and the Pound this morning. With the BoE expected to slash the key interest rate later today to cushion the blow of the Brexit vote, it is very likely that the European Central Bank (ECB) might announce an injection of unprecedented monetary stimulus at its July 21 monetary policy gathering to spur growth in the Euro economy.
Yesterday, macroeconomic data showed that industrial production in the Eurozone fell well beyond market expectations in May led by a steep fall in energy output, thereby highlighting that the single currency region was unable to sustain growth momentum this year. Eurozone’s industrial production has now fallen in five of the past seven months, painting a grim picture for industrial production growth in the second quarter. Severe contraction of the industrial sector in the second quarter suggests that a further downturn seems likely over coming months.
Other Currencies – Highlights
The Canadian Dollar’s bullish run against the greenback gained further traction in the previous session, after the Bank of Canada (BoC) kept the benchmark interest rate on hold at 0.50% at its July monetary policy meeting, a widely anticipated move. Meanwhile, the central bank mentioned that extremely high house prices in some cities like Toronto and Vancouver, combined with the fears of Brexit, will pose a threat to the Canadian economy. Further, the BoC downgraded its growth forecast for the economy to 1.3% in 2016, due to both the repercussions from the Alberta wildfires and uneven consumer spending. At the press conference that accompanied the rate decision, BoC Governor Steven Poloz mentioned that real estate prices appeared to have outpaced local economic fundamentals. In other economic news, the Teranet-National Bank Composite House Price Index showed that house prices advanced in June, the biggest increase during the month since the index started in 1999.
Going forward, traders will keep an eye on Canada’s housing price index scheduled later in the day.