The BoE Takes Centre Stage Today
Today will be yet another eventful day with a string of important data points scheduled for release. The day begins on a nervous note, after the US Federal Reserve (Fed) downgraded its US economic growth forecast yesterday and pinned some of the blame on the UK’s European Union (EU) referendum vote. The Bank of England (BoE) commands the spotlight today as it is set to unveil its latest interest rate decision. Prior to this, data revealed that British retail sales surged in May, buoyed by clothing sales, which posted its biggest rise in over two years.
In the Euro zone, the consumer price index (CPI) data for May is due in some time. Across the Atlantic, US inflation readings will be closely eyed along with the nation’s weekly jobless claims and the Philadelphia Fed manufacturing survey data for June.
Pound Sterling – UK Markets
The Pound is trading on a weaker footing against its key rivals this morning. The just out data showed that the UK’s retail sales posted a significant gain in May, following an increase in clothing sales. Going ahead, Sterling will witness reverberations emerging from Threadneedle Street, as the BoE will announce its latest decision on the interest rate. While the central bank is expected to hold the benchmark rate steady, market participants will look forward to a speech by the BoE Governor, Mark Carney, who is expected to issue fresh warnings about the risks posed by next week’s Brexit referendum. In addition to this, the minutes of the meeting will be released, thus providing further insight into the central bank’s latest plans to stimulate the British economy.
Yesterday, Sterling trimmed its previous session losses and outperformed its major rivals after the nation’s unemployment rate surprisingly fell in the three months to April and earnings improved, providing the much-needed reprieve to the Pound, which has been battered by Brexit fears.
US Dollar – US Markets
The greenback lost ground against its major peers yesterday after the US Fed held the benchmark interest rate steady and indicated that slower economic growth could stall the pace of monetary policy tightening in the future. Further, the central bank stated that the recent abrupt slowdown in the nation’s labour market might be an outlier and expects future economic activity to expand at a moderate pace. Additionally, the Fed lowered the US economic growth forecasts for 2016 and 2017, highlighting the point that the policymakers do not foresee rates going as high as they indicated before. The Fed Chairwoman, Janet Yellen, admitted that the upcoming Brexit referendum topic did arise during the meeting and played a pivotal role in the central bank’s cautious approach. On the data front, US producer prices rose for the second consecutive month in May, driven by the biggest monthly increase in energy prices in a year.
Going ahead, investors await the release of the US weekly jobless claims and CPI data for May, due later today.
Euro – European Markets
The shared currency is trading higher against the US Dollar and the Pound this morning. The ECB, in its economic bulletin report, indicated that growth in the 19-nation currency bloc will continue to recover slowly but risks are tilted to the downside due to uncertainty over the European Union referendum and sluggish emerging markets. However, the ECB expressed confidence on the domestic front, stating that investment and consumer spending in the region will continue to rise at a robust pace. Looking ahead, the Euro zone's CPI data is scheduled for release in some time. Market participants expect the region’s inflation rate to post a slight uptick in May.
Yesterday, the Euro gained ground against its American counterpart after the US Fed held the short-term interest rate steady and lowered its rate path outlook for each of the next two years. On the data front, the Euro zone's trade surplus rose to a record high level in April, indicating that the region’s recovery remains on track in the second quarter of this year.
Other Currencies – Highlights
The Japanese Yen’s bullish run against the greenback gained further traction post the Bank of Japan’s (BoJ) latest monetary policy announcement, knocking off the US Dollar - Japanese Yen currency pair to its lowest level since August 2014 and leaving it to languish below the crucial 104.00 handle. The BoJ left the key interest rate steady and refrained from introducing additional monetary stimulus, as widely expected. At the conference that accompanied the rate decision, the BoJ Governor, Haruhiko Kuroda, put on a brave face despite external headwinds and anemic inflation in Japan. He indicated that the nation’s economy will expand moderately as a trend and that the central bank’s inflation target is likely to be achieved by March 2018. Moving ahead, next week will see the release of some important data points from Japan, including the nation’s all industry activity and Nikkei manufacturing PMI, along with the BoJ’s latest monetary policy meeting minutes.
Earlier in the session, data showed that the final print of Japan’s machine tool orders declined in May.