UK BoE Governor Testifies on the EU Referendum
This morning, the Bank of England (BoE) Governor, Mark Carney, is giving a detailed assessment of risks associated with the UK leaving the European Union (EU) before the Treasury Select Committee. He started by confirming that the central bank would not be making any recommendation in regards to how to vote in the EU referendum in June.
In Europe, economic data released earlier today revealed that German industrial production recovered at a quicker than expected pace in January. In a short while, the Euro zone’s revised fourth quarter growth figures are scheduled for publication. Across the Atlantic, the NFIB Small Business Optimism Index and IBD/TIPP economic optimism indicator are due for release later in the day.
Pound Sterling – UK Markets
The Pound is trading on a weaker footing against the shared currency this morning, while the Sterling – US Dollar currency pair gave up earlier gains and is currently trading in a close range. Earlier today, a report by the British Retail Consortium indicated that retail sales growth across the UK’s high streets slowed to almost a standstill in February, after a strong start to the year. The report showed that strong sales of furniture and Valentine’s Day cards and gifts were largely offset by a decline in food, clothing and footwear sales. The dismal economic data had little effect on trading in Sterling against its key peers.
With no further economic releases scheduled in the UK today, investor focus has shifted towards the address by BoE Governor, Mark Carney, to the Parliament’s Treasury Select Committee on the financial consequences of Britain leaving the Euro bloc. The Governor stated that the BoE will not make any recommendation in relation to the EU referendum and would instead focus only on how the outcome of the referendum affects the economy. Also, markets will try to decipher clues on the bank’s future rates policy from the ongoing speech.
US Dollar – US Markets
The US Dollar turned lower against most of its major currency counterparts yesterday as big gains in oil prices boosted the demand for the Euro and commodity-sensitive currencies. Yesterday, two distinguished Federal Reserve (Fed) officials expressed their diverging viewpoints about the inflation outlook, adding to the uncertainty on the timing of the central bank’s next interest rate rise. FOMC member, Lael Brainard, indicated that the central bank should be patient with further rate increases, given the slowing growth in the economy and the lack of inflationary pressures. Meanwhile, the Fed Vice Chairman, Stanley Fischer, stated that inflation was showing signs of moving towards the Fed’s desired target. The speeches captured some of the tension among policy makers ahead of the Fed’s meet next week.
The greenback is trading on a stronger footing against the Pound this morning. On the macroeconomic front, investors will eye second tier sentiment reports on small businesses in the US via the National Federation of Independent Business and on the economy through the IBD/TIPP Economic Optimism Index.
Euro – European Markets
The Euro is trading on a stronger footing against the US Dollar and the Pound this morning, ahead of the release of Euro zone’s final fourth quarter growth data which is anticipated to remain unchanged from previously announced estimates, indicating that the Euro zone economy continued to expand at a moderate pace. Meanwhile, market participants will gradually shift their attention to Thursday’s European Central Bank meeting, with the increasing likelihood that the stimulus measures will be stepped up to help reverse the declining trend in inflation and boost growth throughout the Euro zone.
Earlier today, a report indicated that German industrial production sharply rebounded at the start of the year, registering its strongest growth in more than six years. The better than expected data signalled that strong domestic demand will help support growth in the Euro zone’s largest economy in 2016 even as external trade slowed down and financial market turbulence impacted business morale. In separate data, French trade deficit slightly widened in January as the nation’s imports fared better than its exports.
Other Currencies – Highlights
The US Dollar - Japanese Yen currency pair slipped below the 113.00 mark earlier after data showed that Japan’s economy contracted less than initially estimated in the fourth quarter of 2015. In the revised GDP data, growth in business investment was revised up while private consumption was the main drag on the Japanese economy. Looking ahead, a steep fall in share prices and exports, and a sharp rise in the Japanese Yen at the start of the first quarter have raised the possibility that the world’s third largest economy might shrink for two straight quarters despite Prime Minister Shinzo Abe's efforts to boost growth. Additionally, Japan recorded a current account surplus for the 19th consecutive month in January, as strong income from overseas investments offset a shortfall in international trade.
The Japanese Yen continues to trade higher against the greenback even after a gauge of peoples assessment of the Japanese economy unexpectedly deteriorated to its weakest level in fifteen months for February.