As George Osborne, the UK Chancellor, stated yesterday that a slowdown in Euro zone is affecting Britain’s economy, uncertainty continue to build up over the timing of an interest rate rise in the nation, especially considering mixed domestic macro data lately. As a result, the BoE adopted a wait and watch approach and kept its policy stance unchanged yesterday. However, data just out has indicated that trade deficit in the UK narrowed for August.
Across Europe, the ECB Chief reiterated that more easing measures might be introduced in the region, if needed. With a light US economic calendar today, market focus is on speeches from various Fed officials to ascertain the impact of a slowdown in the Euro zone on the US.
Pound Sterling – UK Markets
Data just out has shown that trade deficit in the UK narrowed more than expected for August on the back of a drop in oil imports. However, concerns remain that exports form the UK could lose traction during the latter half of 2014 on account of a potential slowdown in the Euro zone economy. Separately, another report revealed that construction output in the UK declined unexpectedly for August. Sterling has shown little reaction to the mixed economic data released this morning.
In yesterday’s trading session, the BoE kept its key interest rate unchanged at 0.5% and maintained the size of its asset purchase facility at £375 billion, in line with market expectations. Meanwhile, uncertainty continues to build up among investors over the timing of an interest rate rise in the UK, especially after the British Chancellor, George Osborne, warned that recessionary prospects in the Euro bloc might affect the nation. With the UK consumer price inflation and labour market data scheduled next week, investors will closely scrutinise these figures to gauge the amount of slack in the economy.
US Dollar – US Markets
The greenback gained ground against the Euro and Sterling in yesterday’s trading session following the release of upbeat US jobless claims data. The report revealed that the number of initial jobless claimants eased unexpectedly last week and remained below the 300K mark for the fourth straight time. This has further strengthened perception that the nation’s job market continues to grow at a robust pace during the initial phase of the fourth quarter. Meanwhile, with the latest FOMC minutes raising concerns about an elevated value of the greenback and weaker growth in Europe, mixed comments from various Fed officials yesterday did little in pacifying investors’ uncertainty over the timing of an interest rate rise in the US.
With little on the domestic macroeconomic front, the greenback is trading in a tight range against its major peers this morning. Moving ahead, traders will keep a tab on next week’s crucial retail sales data and the preliminary reading of Reuters/Michigan consumer confidence survey in the US for further insights into the strength of consumer-led growth in the world’s largest economy.
Euro – European Markets
The common currency is trading in a tight range, albeit on a weaker footing, against the US Dollar this morning. Mixed industrial production data released in France earlier today did little to convince investors that growth in Europe’s second largest may rebound for the third quarter. Additionally, with signs of a deflationary threat in the common currency bloc and subdued economic outlook across key European nations, markets have adopted a wait and watch approach to gauge the impact of the central bank’s current stimulus package.
The Euro lost ground against the greenback in yesterday’s trading session after a report released in the US showed that the number of jobless claimants remained close to its pre-recession lows. Additionally, the ECB Chief, Mario Draghi, indicated yesterday that the central bank stands ready to take further easing measures, if needed. However, with Germany continuing to hold its stand against the ECB’s plan to buy government bonds, markets will continue to assess prospects of other backup measures from the monetary and fiscal policy front that can be implemented to boost growth in the region.
Other Currencies – Highlights
The Japanese Yen traded in a tight range against the greenback in yesterday’s trading session ahead of the Bank of Japan’s minutes of the latest policy meeting. The minutes released earlier today showed that some member were concerned about the nation’s weak export growth, as recovery in Europe and emerging economies remained lacklustre. Additionally, another report revealed that consumer confidence in Japan deteriorated unexpectedly for September. This has raised concerns that the impact of the April sales tax hike continues to weigh on the nation’s domestic economic conditions. Against this backdrop, the prospects of the BoJ reaching its 2015 inflation target looks unlikely.
With no domestic economic releases scheduled today, the Japanese Yen is likely to take direction from speeches of various US Fed policymakers.
Markets Turn Choppy Ahead of Key Data
British Pound Extends Slide as Cross-Party Talks Collapse