US Fed’s Monetary Policy Meeting Commences Today
Today the US Federal Reserve (Fed) will be in the spotlight, as the central bank kick-starts its two-day monetary policy meeting. While the Fed is widely expected to stand pat on interest rates, investors look forward to the central bank’s current assessment of the US economy and whether the nation is strong enough to absorb an interest rate increase in near future. On the data front, there are a slew of economic releases in the US today. These include the nation’s consumer confidence, new home sales and services PMI data.
In the UK the just released data showed that British banks approved the fewest mortgages for house purchase since March 2015 in June. Meanwhile, in the Eurozone, Spanish producer prices advanced on an annual basis in June.
Pound Sterling – UK Markets
The Pound is trading on a weaker footing against the US Dollar and the shared currency this morning, after the just out data showed that UK’s BBA mortgage approvals dropped to a 15-month low in June. However, these figures can be deceptive and a true picture of the Brexit impact will emerge only once the July data is out. Interestingly, in June, a majority of the applicants were under the impression that Britain would retain its European Union (EU) membership.
Meanwhile, Britain is slowly accepting the harsh after-effects of its decision to quit the EU. As days pass, new economic data points are thrown up and the British public is left staring in disbelief. Yesterday, the Confederation of British Industry’s (CBI) monthly survey numbers further corroborated the fact that the UK economy has indeed hit rock-bottom. The CBI total order book balance further declined in July. Additionally, the nation’s business optimism index plummeted to its lowest level since January 2009. This comes after Britain’s Markit composite index for July slumped last week.
US Dollar – US Markets
The greenback is trading mixed against the Euro and the Pound this morning, ahead of the two-day monetary policy meeting by the US Fed, commencing later today. It is anticipated that the US central bank will not raise interest rates this month, particularly after the minutes of the previous month’s FOMC meeting indicated that it needs more evidence of the nation doing much better before they pursue the path of moving interest rates. However, the US economy has continued to perform well and the labour market has regained momentum in June, which may lead the Fed to reconsider its intention to raise interest rates this year. Additionally, the Fed officials are worried about a number of downside risks to the economy emanating from overseas mainly due to the possible repercussions of the Brexit vote and persisting weakness in the European banking system.
Yesterday, economic data showed that production at Texas factories somewhat stabilised in July, although it was still negative. Meanwhile, the headline activity index has not turned positive since December 2014.
Euro – European Markets
The shared currency is trading higher against the greenback and the Pound this morning. Today, the Eurozone economic calendar is relatively light. Data released earlier in the session showed that Spanish producer price index (PPI) advanced in June. On an annual basis, the nation’s PPI posted an improvement for the second consecutive month. Looking ahead, things will get busy on the data front as the week progresses. The Eurozone and Germany’s consumer confidence, unemployment rate and consumer price index data are scheduled for release this week. Moreover, the Eurozone business climate, industrial confidence and GDP data along with German retail sales data will be on investors’ radar.
Yesterday a fresh batch of data suggested that company executives in Germany, the Eurozone’s largest economy, are not as pessimistic as initially thought. A report by the Munich-based Ifo economic institute indicated that German business climate, expectations and current assessment index, all came in better than projected in July.
Other Currencies – Highlights
The Kiwi Dollar has reversed its previous session losses and is trading higher against the greenback this morning following the release of positive trade data from New Zealand and amid a broad weakness in the US Dollar ahead of the US Fed’s two-day monetary policy meeting that begins today. Data released earlier during the session showed that New Zealand’s trade surplus surpassed investor expectations in June and recorded the sixth consecutive month of surplus. The surplus was driven by a surge in kiwifruit exports, which hit a record high level in June, and a drop in imports. Separately, the Reserve Bank of New Zealand (RBNZ), in its latest economic assessment report, signaled further easing of monetary policy in order to address the problem of low inflation.
In terms of upcoming releases this week, Statistics New Zealand will release a report on building permits for June. Also, the Australia New Zealand Banking Group will release its latest activity outlook and business confidence indicators.