Spotlight on BoE and FOMC Meeting Minutes
BoE policy makers were unanimous in the decision to keep interest rate steady and at a record low during its latest monetary policy meeting. The just released BoE meeting minutes offered no new information, as the quarterly inflation report released last week had offered insights to MPC members’ views on the economy.
Conversely, the FOMC meeting minutes, scheduled later today, are likely to attract considerable attention. With policymakers having taken a more hawkish stance previously, it remains to be seen if they have altered their outlook following a dismal first quarter. Going forward, investors’ focus will shift to tomorrow’s preliminary manufacturing PMI readings from the Euro zone.
Pound Sterling – UK Markets
Yesterday, the Pound traded close to the 1.54 mark against the US Dollar after data showed that UK inflation turned negative in April for the first time on record. The factors behind falling prices appear temporary, with the drop being aided by lower air fares and Easter holidays falling outside April's data collection period. In its quarterly inflation report, while the BoE had forecast deflation, it had predicted that inflation would pick up as soon as the effects of lower oil prices fade. In line with this yesterday, BoE Governor Mark Carney suggested low inflation over the next few months, moving over the course of the year towards the central bank’s 2% target.
The minutes from the Monetary Policy Committee, released just now, show that members voted unanimously to hold interest rates at historic lows. The vote count was widely expected as the quarterly inflation report last week had already indicated members being concerned about the downward risk to inflation. The Pound has now recovered part of its losses to trade higher against the US Dollar.
US Dollar – US Markets
The US Dollar has extended gains from the previous session to trade higher against the Euro this morning. Investors look forward to the release of the minutes of FOMC’s April meeting, particularly for discussion surrounding the timing of the rise in interest rates. Market participants will assess the meeting minutes to seek confirmation as to whether Fed officials expect the US economy to bounce back from a dismal first quarter and also for cues regarding the central bank’s inflation outlook.
The US Dollar traded broadly higher against a basket of major currencies yesterday following upbeat housing starts data, which was in contrast to the recent spate of soft data on business activity and consumer spending. The new starts for April marked the highest level since November 2007, surpassing market expectations. The report also indicated that the number of building permits issued for April increased, representing its largest gain in more than seven years. Today, mortgage applications data will be eyed for a clearer picture about the state of the housing market, as earlier NAHB data had showed an unexpected drop in builder confidence for May.
Euro – European Markets
Yesterday, the Euro fell below the 1.12 mark against the US Dollar following remarks by the ECB member, Benoît Coeuré that the central bank might increase its purchase of asset backed securities in May and June to offset lower market liquidity during the summer months. Additionally, the ZEW indicator of economic sentiment for Germany declined more than expected for May, indicating that weaker than expected growth in the first quarter weighed on economic outlook in the Euro zone’s largest economy. The consumer price index remained unchanged on an annual basis for April. Separately, unadjusted trade surplus widened more than market expectations for March.
The Euro is trading on a weaker footing against the major currencies this morning, following the release of data which showed that German producer price index for industrial products fell unexpectedly for April. Going forward, attention will shift towards the flash manufacturing PMI readings for Euro zone economies, scheduled tomorrow.
Other Currencies – Highlights
Earlier today, Japan’s GDP reading offered support to policy makers’ view that the Japanese economy is on its way to recovery. The flash growth rate indicated that the economy, on a quarterly basis, expanded higher than market expectations for the first quarter. The latest data showed that economic growth accelerated, supported by a rebound in business and household spending. Also, the nation’s exports continue to recover as the Bank of Japan’s aggressive stimulus measures have resulted in a weaker Yen. However, investors seem to have shrugged off the robust growth data as the Japanese Yen continues to trade on a weaker footing against the US Dollar.
With no further domestic releases to trigger volatility in the US Dollar-Japanese Yen currency pair, market participants will look forward to the minutes of the FOMC’s latest monetary policy meeting for direction. Going forward, investors will note Japan’s Nomura/JMMA manufacturing PMI data, scheduled tomorrow, for further cues.