US FOMC Meeting in Focus
This morning, data revealed that house prices in Britain fell for a second consecutive month in December. With a light economic calendar day in the UK today, investor focus will be on tomorrow’s consumer price inflation data for November, which is likely to show the absence of inflationary pressures in the UK economy. In the Euro zone, currency traders will eye industrial production figures scheduled for release in sometime.
Across the Atlantic, the Federal Reserve (Fed) is likely to increase borrowing costs in nearly a decade, though worries over the gradual rate rise remain persistent as the Fed officials are perplexed that the rates might fall back to the near zero level in the long term.
Pound Sterling – UK Markets
Britain’s house sellers’ average asking prices improved during the end of the year, according to a report by property tracking website, Rightmove that was published earlier today. The rise in home prices could be attributed to an imbalance caused by housing supply constraints and surging demand from buyers. Today’s house price update signals another round of price rise heading into 2016 as this December home prices recorded its best post financial crisis performance, when generally a fall is the norm at this time of year. The data, however, hardly influenced trading in the Pound against the major currencies.
Amid a light calendar day in UK today, Sterling investors will look forward to domestic unemployment and inflation data due in the coming days which could explain why the Bank of England (BoE) has changed its recent rhetoric and drove expectations of an interest rate rise to the next year. With weak energy and food prices not likely to abate anytime soon, tomorrow’s CPI update will continue to show lack of price pressures. Going ahead, the jobless rate is anticipated to remain steady, while wage growth could show some weakness for October.
US Dollar – US Markets
The greenback is trading on a stronger footing against most of the major currencies this morning as markets keenly await the interest rate decision scheduled this week. The policy meeting is expected to set a tone for a gradual rise in the interest rates in 2016, however, the Fed officials are concerned that rates might fall back to near zero within the next five years. Amid a light economic calendar in the US today, market focus will shift to a string of crucial publications tomorrow. US consumer price inflation data for November ahead of the Fed’s monetary policy meeting will be keenly eyed by investors to determine the direction of the currency against its key peers, though it is not expected to influence the interest rate decision.
The US Dollar fell against the Euro and the Pound on Friday but remained supported by expectations of interest rate rise by the US Fed. On the data front, US advance retail sales climbed for November, however fell shy of market expectations as the holiday shopping season experienced a fairly efficient start suggesting that the Fed has sufficient evidence to increase its borrowing costs in almost a decade.
Euro – European Markets
The shared currency has reversed some of its previous session gains and commenced the new week on a downbeat note, as the US Dollar strengthened across the board earlier today with market focus squarely on the upcoming Federal Open Market Committee meeting this week. The Fed/ ECB divergent monetary policy outlooks have become more prominent lately, with the US Fed on track to increase its key interest rates for the first time in nearly a decade on Wednesday while the ECB board members have kept the door wide open for further stimulus next year if Euro zone’s growth and inflation worsens. In the meantime, it is a light economic calendar today in Europe, with only the Euro zone industrial production data scheduled in a short while. Following which, the ECB Chief Mario Draghi is slated to speak at Prometeia's conference, in Italy, which could attract significant market interest.
In the coming days, the flash December manufacturing PMI readings and German business surveys could show that the Euro region economy continues to modestly grow and provide an explanation as to why the ECB came out as less dovish than expected in its last policy meeting.
Other Currencies – Highlights
Currently, the Japanese Yen has nudged lower against the US Dollar on the back of a stronger greenback across the board on expectations of a Fed rate rise in the mid-week. Also, the Japanese Yen was largely unperturbed by local industrial and tertiary activity data released earlier in the day. The final industrial production figures in Japan rose for the second consecutive month in October, confirming earlier estimates. Also, the nation’s tertiary activity index surged above expectations for October, reversing a drop witnessed in the previous month.
Also, the Bank of Japan’s (BoJ) Tankan report had made headlines during the weekend, with the survey showing that confidence among large manufacturers unexpectedly dived to its lowest level since March 2013 amid uncertainty about the impact of an expected US rate rise and slowing growth in China. However, the Japanese Yen hardly responded to the Tankan release, reflecting its limited implications on the BoJ monetary policy. This week, markets focus will be on the upcoming Fed and BoJ policy meetings.