Overall Little Economic Data on Tap
It is fairly a quiet day in terms of economic releases in the UK, US and Europe. The recent tumbling of commodity prices worldwide had dampened overall market sentiment. But this morning, the risk sentiment seems to have stabilised and the Pound is currently seen recovering against its key peers.
Datawise, German exports and imports posted a sharp decline for October earlier today, highlighting the impact of the slowdown in emerging markets on the 19-nation currency union’s largest economy. Across the Atlantic, the weekly update on US mortgage filings might attract some market attention. Apart from data, the Bank of England (BoE) Financial Policy Committee will publish the record of its November meeting on risks to the UK’s financial system later today.
Pound Sterling – UK Markets
Yesterday, Sterling briefly dropped below the 1.50 mark against the US Dollar after UK manufacturing output unexpectedly fell on an annual basis in October, denting hopes of a balanced economic growth recovery in the fourth quarter. However, broader industrial growth painted a more positive picture of the UK economy for October. Later in the trading day, the currency pair partly recovered from its losses after the latest projections by the National Institute of Economic and Social Research (NIESR) showed that Britain’s economic growth slightly improved in the three months to November. According the economic think-tank’s estimates, the latest growth projection was consistent with the continued absorption of spare capacity in the UK economy. NIESR’s quarterly forecast, released last month, predicted growth of 2.4% p.a. in 2015 and 2.3% p.a. in 2016.
It is a light UK economic calendar day today. Meanwhile, the BoE will release the financial committee record of the November meeting, but that is unlikely to include any new hints about tomorrow’s monetary policy meeting.
US Dollar – US Markets
The US Dollar is trading broadly lower against a basket of major currencies this morning, as investors seemed to have adopted a cautious stance ahead of the US Federal Reserve’s (Fed) monetary policy meeting next week. With minimal economic data scheduled in the US docket today, traders are awaiting a string of significant macro updates including retail sales and producer prices data on Friday. Nonetheless, the weekly US mortgage applications due later today will fill in an otherwise data dry US calendar. In the recent months, the appetite for mortgages seems to have cooled, perhaps because the Fed is on track to increase its interest rates as soon as next week. As a matter of fact, mortgage borrowing rates have already been raised in recent weeks. Today’s weekly update will offer fresh context for determining whether the recent downtrend in mortgage demand is gaining momentum.
Yesterday, the US Dollar made modest losses against the Euro on renewed worries of a slowdown in the global economy. However, the greenback remained buoyed on growing expectations of a rate rise in next Wednesday’s monetary meeting outcome.
Euro – European Markets
Earlier in the day, the common currency surged above the 1.09 mark against the US Dollar, with recovery momentum in the Euro gaining pace from near seven month losses that was sparked by the European Central Bank’s less than expected dovish approach last week.
Datawise, it is a relatively quiet economic calendar day in Europe with the only exception of German trade data that was published earlier today. German imports sharply dropped for the second time in three months and exports also deteriorated more than market estimates for October, indicating that Euro zone’s biggest economy has been unable to come out of the impact of a slowdown in emerging markets especially China. Also, the negative export performance of the German economy reflects the ripple effects of the Volkswagen emissions scandal that had initially broke in the middle of September. Today’s foreign trade data along with disappointing October industrial output data published earlier in the week suggests that weak demand from emerging markets is still obstructing German economic growth at the start of the fourth quarter.
Other Currencies – Highlights
The Kiwi Dollar is under severe pressure against the greenback this morning amid growing uncertainty whether the Reserve Bank of New Zealand (RBNZ) will slash its official cash rate at its monetary policy meeting scheduled later today. Market expectations of a rate cut have inched higher as overnight index swaps are pricing in a 61% chance of a 25bps or 0.25% rate cut. Meanwhile, the three-month New Zealand government bills have implied only a 46% possibility of the same move. These estimates are an indication of the heightened uncertainty that has equipped the local market ahead of the RBNZ’s interest rate decision today. RBNZ is expected to ease rates again today as two key factors - softer inflation dynamics and weaker dairy prices since the last rate cut have deteriorated in the New Zealand economy.
As of now, the Kiwi Dollar is also currently being hammered against the US Dollar in the aftermath of a slump in commodity prices.