US Dollar Retreats Ahead of Fed Meeting
As the week comes to a close, investor focus currently is on next week’s meeting of the US Federal Reserve, with opinion divided on the likelihood of whether the FOMC will move its interest rate higher this month. Later tonight from the United States we have the release of a set of key data prints that includes producer prices and a preliminary gauge of US consumer sentiment, which could have some impact on the timing of the Fed’s decision.
Yesterday, minutes from the BoE meeting hinted that it is on track to raise its benchmark interest rate next year, with rate setters agreeing that the turbulence in global financial markets has not altered the outlook for the UK economy. In Europe, the final German CPI print revealed that consumer price pressures stagnated last month.
Pound Sterling – UK Markets
The Bank of England policymakers yesterday expressed optimism and maintained that the UK central bank remains on track to raise interest rates soon, despite the turmoil in China which has added to the headwinds that the nation is facing. The MPC voted to keep the benchmark interest rate on hold at a record low. The voting pattern was the same as in August, with Ian McCafferty voting in favour of increasing the borrowing rate. The minutes showed that the UK’s economic prospects remain positive, but also highlighted concerns regarding the deflationary effect of the domestic currency. The Pound edged higher against its major currency counterparts in yesterday’s trading session soon after the publication of the minutes of the BoE meeting.
Sterling has failed to hold on to its previous session gains against the US Dollar this morning, with the currency pair trading lowe than yesterday. Meanwhile, the just out data revealed that Britain’s construction output unexpectedly eased in July, as house building activity dropped the most in two years.
US Dollar – US Markets
The US Dollar is trading in a tight range against the major currencies this morning, ahead of the US FOMC meeting next week and as traders continued to digest a mixed set of data released in the US last session. Next week, the FOMC will closely watch out for data on inflationary trends, ahead of a two day monetary policy meeting, wherein the US Fed might decide whether to raise its benchmark rate. In today’s session, investors will seek hints about the health of the US economy from reports projected to show a decline in producer prices and the flash consumer sentiment reading.
Yesterday, the greenback lost ground against most of its key counterparts. The Department of Labor data showed signs that the US employment market remains healthy, as claims for first time jobless benefits dropped in line with market expectations for last week. However, in a separate report, import prices fell the most in seven months for August, suggesting weak inflationary pressures in the nation.
Euro – European Markets
The Euro - US Dollar currency pair briefly brushed the 1.13 mark earlier in the day, but later gave back part of those gains following the release of German final consumer price inflation print. The final German CPI publication was unchanged from the preliminary estimate for August, with the harmonised index of consumer prices in the nation staying flat on a monthly basis and barely rising on an annual basis. Also, the German wholesale prices dropped sharply for August, adding to concerns about a further downside in the nation’s consumer price inflation going forward. Meanwhile in Spain, data indicated that consumer prices fell in line with market consensus for August. In a separate report, production in Italian industries rebounded, with the output rising above market estimates for July and signalling continued growth momentum in the nation’s economy for the third quarter.
Besides, during the weekend, the Euro group meeting is scheduled to take place, with Greece and Euro area’s economic situation likely to dominate the agenda of the meeting.
Other Currencies – Highlights
The Canadian Dollar is currently trading in a close range against the US Dollar, with the greenback having recovered most of its previous session losses this morning. The US Dollar – Canadian Dollar currency pair yesterday retreated and slipped below the 1.32 mark on ongoing uncertainty over whether the Federal Reserve will increase its rates in this month’s monetary policy meeting. In the session ahead, two US data prints, producer prices and the University of Michigan’s consumer poll might provide new information on the state of the US economy and further influence trading in the greenback against the Canadian Dollar.
In economic news, Canada’s new house prices rose, albeit at a slower pace for July, on the back of strong demand and higher labour costs in Toronto's robust housing market. Going forward, one of the key data inputs in the Canadian economic calendar would be the nation’s consumer price inflation report for last month which is expected to attract significant market attention in the final session of next week.