FOMC Minutes and EU Summit in Limelight
Out of the several economic reports scheduled for release today, the just out numbers for the UK labour market are by far the most important. The jobless rate for the three months leading to December held steady at lows not seen since 2005 and claims for unemployment benefits fell. At the same time, wage earnings, excluding bonuses, advanced more than estimated but growth remained subdued. Apart from data releases, the upcoming European Leaders summit has Sterling traders cautious as the focus is on Britain’s membership of the European Union (EU).
Today, there is little in terms of significant economic data in Europe. Across the Atlantic, housing starts, building permits, industrial production and producer prices data are due for release later in the day. Also, the Federal Reserve (Fed) will publish the minutes of its recent monetary policy meeting today.
Pound Sterling – UK Markets
Earlier today, the Pound – US Dollar currency pair was trading below the 1.43 mark as investors braced for volatility stemming from the EU summit which is to take place on Thursday. The British Prime Minister, David Cameron’s proposed reform package will be discussed at the summit and if approved, could pave the way for the referendum to be held as early as June. Meanwhile, latest polls on the referendum over Britain’s membership of the EU indicate that it is going to be a close call.
In the meantime, investors have shifted their focus towards the just released UK jobs report and wage data. Today’s labour market report once again showed that wage growth including bonuses slowed, in line with estimates, for the three months till December. Meanwhile, pay growth excluding bonuses edged up. The mediocre wage growth data indicated that the Bank of England (BoE) is under no pressure to alter its policy stance. Earlier this month, the BoE had slashed its forecast for wages this year in its Inflation Report. Additionally, the ILO jobless rate held at a decade low in the fourth quarter and jobless claims fell in January.
US Dollar – US Markets
The US Dollar has edged higher against the shared currency this morning ahead of the release of the minutes of the Federal Open Market Committee’s (FOMC) most recent policy meeting later in the day. Investors will keenly monitor the minutes of the January meeting to try and gauge any insights regarding potential moves by the central bank. Earlier, a speech by the voting member of the Fed policy committee, Eric Rosengren, indicated that the strong US Dollar and fall in oil prices make it less likely that the Fed will be able to achieve its inflation target. As per his views, the Fed should not hurry to normalise monetary policy.
On the macroeconomic front, yesterday data showed that the home builder sentiment slightly deteriorated in February. Although the current reading continues to signal growth, the latest dip hinted that the housing market growth might be on track to decelerate further in the months ahead. In today’s housing market data, expectations are for a modest improvement in housing starts for January. A downside surprise in today’s housing update would heighten concern of a slowdown in the residential market.
Euro – European Markets
The Euro has currently surrendered some of its earlier gains against the US Dollar and the Pound, amid few economic releases scheduled for release in the Euro zone today. In the European docket, only the region’s construction output data is due for release in a short while. The immediate focus among Euro investors will be on economic news from other major economies, oil prices movement and broader market sentiment. The Euro has largely remained resilient in the face of the European Central Bank’s (ECB) dovishness and weaker economic data. Amid growing uncertainty as to how the ECB will approach monetary policy in March, tomorrow’s account of the most recent policy meeting should provide some cues. As a result, publication of the ECB’s January meeting minutes will likely trigger volatility in trading in the Euro against the major currencies.
The Euro traded lower against the US Dollar yesterday. On the economic front, the German ZEW survey was mixed for February, as the current situation index fell short of expectations, while economic sentiment for the nation was slightly above market estimates.
Other Currencies – Highlights
The New Zealand Dollar has recovered from its earlier losses against the US Dollar today. Yesterday, the weakness in oil prices had weighed on the commodity currencies. Oil prices resumed their slide after a meeting between major oil producing nations concluded with an agreement to maintain production at current levels, dampening hopes for production cuts. The Kiwi Dollar lost ground against the greenback late yesterday after the New Zealand Global Dairy Trade index posted a decline. Dairy prices have continued to fall at every session in 2016 so far, signalling that prospects of the domestic economy remain less optimistic. That added to the recent survey by the Reserve Bank of New Zealand which showed that inflation expectations fell to a 22-year low, increasing the chances of another rate cut in the near-term. Today, investors remain cautious ahead of the publication of the minutes of the Fed’s most recent monetary policy meeting later today.
In economic news, investors will keep a tab on New Zealand’s producer prices data for the fourth quarter and housing starts numbers in the US for further direction.