Focus On the Fed’s Beige Book
In economic releases, the Eurozone’s industrial production data is scheduled to release in a few hours. In the Eurozone, just out data indicated that the French consumer price index rose at a slower pace in June, while consumer prices in Spain advanced as estimated in June. Also, Italian consumer price index rose in June from May. Later today, Theresa May will be appointed as the UK’s new Prime Minister after David Cameron hands over his resignation.
Today, the US Federal Reserve (Fed) will release its Beige Book describing the prevailing economic conditions in the nation. Fed officials Patrick Harker and Robert D. Kaplan are scheduled to speak later today while the US monthly budget for June is also on tab.
Pound Sterling – UK Markets
Earlier today, the Pound was trading firmer against the US Dollar and breached the crucial 1.33 handle amid fading political drama in Britain. However, the Pound – US Dollar pair was unable to sustain higher levels and is currently trading near the 1.32 level.
Yesterday, Sterling gathered support during the Bank of England (BoE) Governor Mark Carney’s testimony before a parliamentary select committee, at which he pledged that there will not be shortage of credit for UK households and businesses. Additionally, he hinted that the central bank could step in to unleash a fresh round of monetary stimulus to cushion the economy after Britain’s decision to exit the EU. Meanwhile, analysts expect that the BoE’s latest move could happen at the meeting of the monetary policy committee tomorrow wherein expectations are rife that the bank might cut benchmark interest rates. It is highly anticipated that if policymakers do not move the base rate this week, the central bank would signal to act in August.
US Dollar – US Markets
The greenback lost ground against most of its major peers yesterday. On the data front, the US NFIB small business optimism index advanced higher than anticipated in June, albeit a decline in employment, inventories and expansion have made this rise negligible. The June reading for the index still remains well below its 42-year average. Additionally, gains in the nation’s wholesale inventories were meagre in May as automobile stocks recorded their biggest drawdown in more than two and half years, indicating that inventory investment weighed down on the nation’s economic growth in the second quarter. In other economic news, the number of job openings in the nation fell more than estimated in May. Notably, St. Louis President James Bullard indicated that Britain’s vote to leave the EU would not have an enduring impact on the US economy while Minneapolis Fed President Neel Kashkari commented that there was no urgency to raise US interest rates.
Moving ahead, market participants will focus on the US monthly budget statement, import and export price index both for June along with Fed’s Beige book report, scheduled to be released later in the day.
Euro – European Markets
The common currency has lost ground against the US Dollar and the Pound in the morning session, surrendering its previous session gains. Data showed that French inflation fell short of market expectations in June, as a rebound in energy prices was softly offset by a drop in food prices. Consumer prices in France, Eurozone’s second biggest economy, has remained well below the European Central Bank’s (ECB) 2% target despite its monetary policy tools aimed at boosting growth and inflation. Meanwhile, a Reuters poll showed that the ECB will not ease monetary policy when the Governing Council meets next week. Due to the Brexit vote, there was renewed intensification that the ECB may be forced to ramp up its liquidity injections.
Yesterday, ECB policymaker Luis Maria Linde stated that inflation in the region continues to be slow, while the central bank will not make any estimate in its economic forecasts due to Brexit until September. Macroeconomic data showed that German inflation picked up slightly in June, thus raising chances of the ECB reinforcing its ‘wait-and-see’ approach on inserting new monetary stimuli after March rate cuts.
Other Currencies – Highlights
The Japanese Yen has recouped some of its previous session losses and is trading on a stronger footing against the single currency and the US Dollar this morning. Data released this morning from the Ministry of Economy, Trade and Industry indicated that Japan’s final industrial production retreated in May, more than the initial estimates and following robust readings in the previous two months. The decline was attributed to the disappointing exports which subsequently weighed on manufacturing demand, thereby increasing the possibility of additional stimulus measures from the central bank. Adding to the negative sentiment, the capacity utilisation contracted at quicker pace in May, recording its second consecutive monthly fall.
In the previous session, the Japanese Yen slumped to a two-week low against the US Dollar, as expectations of additional stimulus measures from the Bank of Japan to revive economic growth bolstered risk appetite amongst investors.