Mark Carney’s Comments Lift Sterling
Mark Carney stated yesterday that the BoE is likely to stay on its course of raising interest rates next year, although the prospect of a rate cut cannot be ruled out if Britain’s inflation remains low for a prolonged period. Additionally, after the BoE’s lowered the short term inflation forecast in its quarterly report yesterday, he indicated that this downgrade is unlikely to impact Britain’s economic growth for 2015.
Earlier today, the flash GDP readings from Europe revealed that economic growth in Germany remained buoyant for the last quarter of 2014. Investors will now eye the Euro zone’s preliminary GDP readings for further direction. Across the Atlantic, today’s flash Reuters/Michigan consumer sentiment survey will keep investors interested in the latter half of the trading session.
Pound Sterling – UK Markets
The BoE, in its quarterly inflation report yesterday, revealed that low oil prices are likely to keep Britain’s inflation near zero and strengthen the case of an outright fall in domestic consumer prices in the near term. However, this publication hinted that inflation in the nation is likely to rebound and hit its 2% target in approximately two years. It additionally kept the UK’s economic growth forecast for 2015 unchanged at 2.9%. Furthermore, the BoE Chief indicated that the country had not entered into a deflation and reiterated that weak inflation coupled with strong domestic wage growth is expected to have a positive impact on the UK economy. While he indicated that the central bank might cut the key interest rate if the short term outlook on the nation’s inflation remains subdued for a prolonged period, he hinted that the BoE remains on course to raise interest rates next year sooner than consensus expectations. This lifted the Pound against the majors yesterday.
With no crucial domestic macro updates today, Sterling investors will keep a tab on next week’s inflation data and the minutes of the BoE’s latest policy meeting for further direction.
US Dollar – US Markets
The US Dollar slipped against the majors yesterday following the release of disappointing US macro data. Retail sales in the US dropped more than anticipated for January as low gasoline prices continued to dampen overall spending levels in the country. With the core retail sales measure showing a lesser than expected increase, local consumers spent less despite cheap gasoline and a robust hiring pace in the nation. Separately, the weekly jobless claims survey revealed that the number of initial jobless claimants in the US climbed more than expected for the previous week. Considering last month’s upbeat labour market data, market participants remain uncertain whether signs of softness in jobless claims numbers was due to seasonal adjustment difficulties or possibly a sign of moderating hiring pace in the nation going forward.
The greenback is trading in a tight range against its key peers this morning ahead of today’s flash Reuters/Michigan consumer morale reading. Considering yesterday’s dismal retail sales figures, investors will eye this reading to gauge the morale among consumers for February.
Euro – European Markets
The preliminary GDP reports released earlier today revealed that economic growth across key European nations remained almost upbeat for the last quarter of 2014. Against this backdrop, traders will eye Euro zone’s flash GDP readings later today to gauge the macro health of the region, especially considering the upbeat German GDP data. With the ECB expected to introduce its massive stimulus programme next month and following the region’s recent encouraging macro triggers, threat of deflation hurting the region’s growth seem to be diminishing.
The Euro gained ground against the US Dollar yesterday following the release of soft US macroeconomic data. Additionally, the Euro remained buoyed against the greenback after Russia and Ukraine agreed on a ceasefire, albeit Greece’s failure to reach on an agreement with its international creditors kept investors concerned. Meanwhile, data released in the Euro zone revealed that industrial production remained unexpectedly flat for December as a rebound in energy production failed to offset the fall in the manufacturing output of nondurable consumer goods.
Other Currencies – Highlights
The Swiss franc is trading on a firmer footing against the greenback this morning despite data released earlier today revealed that January’s producer and import prices in Switzerland continued to decline for a sixth straight month. Considering that this week’s consumer price inflation in Switzerland showed a weaker than anticipated fall for January, optimism among investors has strengthened that the deflationary impact in the nation is fading away. Market participants will keep a tab on the nation’s inflation numbers going forward, especially considering the fact that the Swiss National Bank removed its cap on the Euro-Swiss Franc pair recently and the resultant appreciation in the Swiss Franc.
With little on the domestic macroeconomic front, investors will eye the preliminary Reuters/Michigan consumer confidence survey in the US for further direction in the US Dollar-Swiss Franc pair. Additionally, the SNB Chairman’s speech and Swiss trade data next week is anticipated to keep traders in the Swiss Franc interested.