Mario Draghi’s Speech Awaited
After a whirlwind week that has included monetary policy decisions from four major central banks, the pace of global economic activity is set to slow down today. There are no economic releases in the UK today. In the Euro zone, the European Central Bank (ECB) President, Mario Draghi, is scheduled to deliver a speech later in the day. Investors will be looking out for remarks on the bank’s monetary policy and the looming European Union (EU) referendum.
Across the Atlantic, US housing starts and building permits data for May is due for release later in the session.
Pound Sterling – UK Markets
The Pound continued to trade higher against its major peers yesterday. The Bank of England (BoE) policymakers unanimously decided to hold the benchmark interest rate steady at 0.50% and also maintained the level of its asset purchases, as they keenly await the outcome of the controversial EU membership referendum, which will ultimately decide the future course of action. Notably, the BoE issued stark warnings on ramifications that could ensue from a “Leave” vote and its subsequent global spillovers. The central bank also vowed to take whatever action is needed following the referendum to achieve its inflation target. Sterling further received another upward push as Britain suspended campaigning over its EU membership status after a deadly attack on a Member of Parliament.
Amid a data-dry UK economic calendar today, investors will focus on the US housing data for fresh cues in the Pound – US Dollar currency pair. In the upcoming week, the spotlight will be on the EU referendum result along with certain economic data releases in the UK.
US Dollar – US Markets
The greenback extended its losses against the shared currency and the Pound yesterday, following a mixed set of data releases from the US. Consumer prices in the nation rose less than expected in May, thus throwing a wrench into the US Fed’s plan to achieve its inflation target. Meanwhile, excluding food and energy prices, the core consumer price index, came in line with market expectations. Additionally, first-time claims for US unemployment benefits climbed more than expected to a one-month high-level last week. On the other hand, a report released by the US National Association of Home Builders showed that home-builder sentiment advanced above expectations to record its highest reading since January 2016, a sign of robust growth in the nation’s housing market. Moreover, the Philadelphia Fed reported a larger than expected rebound in its index of regional manufacturing activity.
Going ahead, market participants look forward to the US housing starts and building permits data, both for the month of May, scheduled for release later in the day.
Euro – European Markets
The shared currency is trading mixed against the US Dollar and the Pound this morning. Data released earlier in the session showed that the Euro zone’s current account surplus expanded in April. On the other hand, Italian trade surplus narrowed during the same month. Moving ahead, market participants keenly look forward to a speech by the ECB President, Mario Draghi, as he interprets the central bank’s perspective on the ECB monetary policy and the upcoming EU referendum vote.
Yesterday, data showed that the Euro zone remained trapped in deflationary territory for the fourth consecutive month in May, despite the ECB pulling all stops to resuscitate growth and prices in the region. Inflation continues to be an uphill battle for the central bank, as it is yet to make any real headway in its efforts to stave off deflationary pressures. Core inflation, which strips out volatile elements, also recorded only a moderate increase. Nevertheless, consumer prices on a monthly basis rose slightly above expectations in May.
Other Currencies – Highlights
The Swiss National Bank (SNB) held the benchmark interest rate at -0.75%, in a widely anticipated move and reiterated its earlier statement that the Swiss Franc is still significantly overvalued. The central bank also warned that it remains on standby to counter any further surge in the domestic currency, thus leaving the door open for future interest rate cuts. The SNB chose to emphasize this point as the Swiss Franc, a traditional safe haven currency, is facing renewed upward pressure amid increased inflows spurred by fears over Brexit prospects. The central bank also raised its inflation forecast for this year and the next, attributing it to the recent recovery in oil prices. Separately, in its 2016 financial stability report, the SNB highlighted that a prolonged period of low interest rates poses a risk to global financial stability.
Moving into next week, investors will witness the release of the SNB’s second quarter bulletin report along with Switzerland’s trade balance and the ZEW expectations survey data.