Key US Fed Officials’ Speech on Radar
The US Fed Chief, Janet Yellen, stated yesterday that the central bank is expected to raise rates by the end of this year and the recent slowdown in the nation’s inflation was temporary, led primarily by a slump in global crude oil prices. In light of these remarks, comments by US Fed Officials, James Bullard and Esther George, are likely to draw attention today, particularly considering that these two policy members are slightly inclined towards the hawkish stance.
Across the Atlantic, no major macro triggers are scheduled for release in the UK and the Euro zone today. In the week ahead, Euro bloc’s preliminary consumer price inflation and Britain’s revised GDP reading will be some key indicators to eye.
Pound Sterling – UK Markets
In yesterday’s trading session, a report showed that the number of home loans borrowed for August in the UK rose above the 40K mark for a fifth straight month. The print also revealed that in monetary terms, the net increase in mortgage approvals was approximately £2 billion during the month, the strongest monthly gain since August 2010, amid fears that the Bank of England might soon tighten its monetary policy stance. Although the Pound did not witness much volatility following the release of yesterday’s mortgage data, Sterling-US Dollar pair came under renewed pressure after the US Fed Chair, Janet Yellen, resorted to a slight hawkish tone in her speech yesterday.
The Pound is trading on a firmer footing against the common currency this morning, in the absence any important economic triggers in the UK today. With speeches by a few key US Fed Officials scheduled later today, traders in the Pound-greenback pair are likely to remain on their toes. In the upcoming week, Sterling investors will await the GfK consumer confidence survey for September and the final GDP estimates for the second quarter for further direction to risk appetite.
US Dollar – US Markets
The US Dollar has strengthened against most of its peers this morning, extending its previous session gains, after the Fed Chief, Janet Yellen, hinted at a rate hike later this year. She highlighted that the US recovery is strong and is unlikely to be affected by adverse macroeconomic developments elsewhere and the recent turmoil in global financial markets. She further added that though inflation expectations have remained well-anchored till now, the central bank should not take it for granted that they it will continue to remain so. Additionally, she stated that the recent shortfall witnessed in inflation was largely due to “temporary effects”. Meanwhile, data yesterday revealed that US durable goods orders for August fell for the first time in three months, due to a pullback in bookings for new cars, airplanes and military hardware.
Going forward, the final revision of second-quarter US GDP and service-sector and composite Markit PMI readings for September will be tracked by investors. GDP is expected to remain unchanged from the previous reading and is likely not to have any significant impact on the trading trends in the US Dollar.
Euro – European Markets
The Euro is trading broadly lower against the US Dollar, after the greenback was buoyed by Fed Chief’s comments that the central bank was still on track to increase its key rates later this year. The US Dollar was further boosted by her comments that inflation in the world’s largest economy would gradually rise to the Fed's target rate as the effect of unusually weak oil prices and other factors gradually recedes.
Yesterday, the ECB Chief Economist, Peter Praet noted that central banks around the globe would find it difficult to adapt to the process of interest rate normalization. He stated that economies have got used to ultra-low rates and central banks may find it difficult to raise interest rates. With a light economic calendar for the Eurozone today, investors would keenly follow the final revision of the US GDP for the second quarter to be released later during the day. In the upcoming week, market focus will be on German and Euro zone unemployment and consumer price inflation reports for further direction to risk appetite.
Other Currencies – Highlights
The Japanese Yen is trading in red against the US Dollar in today’s trading session, after Japan’s core consumer prices for August fell on an annual basis for the first time in over two years, amid declining oil prices and weak domestic demand. The drop in core CPI, Bank of Japan’s main inflation gauge, raises questions over the success of BoJ’s massive monetary stimulus programme. Meanwhile, BoJ Governor, Haruhiko Kuroda after a meeting with the nation’s Prime Minister, Shinzo Abe urged that the recent decline in consumer prices was essentially due to renewed fall in energy costs. Additionally, reacting to the downbeat inflation data, Japan’s Economics Minister Akira Amari noted that it was up to the central bank to decide whether it would opt for more measures to boost the economy.
The US Dollar-Japanese Yen pair clung on to broad gains yesterday, after the US Fed Chief, Janet Yellen hinted that a rate hike could be on cards later this year and further reiterated that the timing solely depended on economic outlook.