This week witnessed some major central bank monetary policy decisions. Yesterday, the Bank of England (BoE) maintained status quo at its final monetary policy meeting for 2016, while the minutes indicated that UK’s inflation growth would be slower than anticipated in the coming year. Moving to another central bank, the Federal Reserve (Fed) raised the key interest rate by quarter of a percentage point and revealed a more hawkish tone by expecting three rate increases in 2017.
Moving to data releases, the French business climate advanced more than expected on a monthly basis in December. Going ahead in the day, investors will keep a close watch on the Eurozone’s consumer price index (CPI) and trade balance data. In the UK, the BoE’s quarterly bulletin and the Confederation of British Industry’s (CBI) industrial trends survey data will be on investors’ radar. Across the Atlantic, housing starts and building permits will wrap up US economic calendar for the week.
Pound Sterling – UK Markets
The Pound extended its previous session losses against the greenback yesterday, after the BoE, in its latest monetary policy meeting, indicated that UK’s inflation may not rise as quickly as it expected in the near term. In a widely anticipated move, the BoE’s monetary policy committee held steady on its key interest rate at 0.25% and maintained the current asset purchase programme at £435.0 billion. Further, the central bank also highlighted that economic growth will slow in 2017, amid weaker consumer spending and as the decision to leave the European Union hampers British firms’ investment plans. On the data front, British retail sales surprisingly rose in November, lifted by Black Friday sales.
Today, UK’s economic data docket includes the CBI’s industrial trends survey and the BoE’s quarterly bulletin. Moving ahead, investors will keep a watch on UK’s gross domestic product and total business investment along with the GfK consumer confidence index and CBI distributive trades survey.
US Dollar – US Markets
The greenback surged against its major peers yesterday, after the US Fed increased the benchmark interest rate by quarter of a percentage point and signalled a more hawkish stance for 2017. On the data front, consumer price inflation in the US rose for the fourth straight month in November, the latest sign of firming inflation as the Fed moves ahead with its plan to gradually increase short term interest rates. Moreover, the number of Americans applying for fresh unemployment benefits fell more than anticipated last week, providing further evidence that the nation’s labour market remains on a steady footing. Activity in the US manufacturing sector advanced as expected in December, notching its highest level in 21 months. Separately, the NAHB housing market index recorded an unexpected rise in December, registering its highest level since July 2005.
The US Dollar is trading lower against the Pound and the shared currency this morning. Later today, market participants will focus on US housing starts and building permits data for further direction.
Euro – European Markets
The shared currency is trading higher against its major peers this morning. Data released earlier in the session showed that French business climate rose above expectations in December. Going ahead, final reading of the Eurozone’s CPI figures for November are scheduled to be released in a few hours. As per the initial numbers, headline CPI registered a small rise from October. The final numbers for November are expected to confirm the flash estimates. Additionally, the Eurozone’s foreign trade data is also due at the same time and the region’s seasonally adjusted trade surplus is expected to slightly widen in October.
Yesterday, the Euro dropped to its lowest level in over a decade against the greenback, as the US Dollar strengthened across the board. Earlier this month, the European Central Bank in another desperate bid to boost the Eurozone economy, extended its quantitative easing programme. In contrast, the Fed decided to raise rates and offered a more hawkish tone for 2017. This glaring policy divergence has been weighing on the Euro.
Other Currencies – Highlights
During the previous session, the Swiss Franc ended lower against the greenback, amid a broad strength in the US Dollar, given the Fed’s hawkish stance for 2017. Meanwhile, the Swiss National Bank (SNB) kept key interest rate unchanged at -0.75%. The SNB Chairman, Thomas Jordan hinted that going further, it might become necessary to further decrease rates in Switzerland from their current record low levels and reiterated that the central bank would continue to remain active in the foreign exchange market, as necessary, with the Swiss Franc still considered to be significantly overvalued. Further, the SNB slightly downgraded its inflation forecasts for 2017 and 2018. Separately, the Swiss government’s expert group, SECO has forecasted a renewed pick up in Switzerland’s economy, driven by growth in both domestic demand and foreign trade.
The Swiss Franc has reversed its previous session losses and is trading higher against the US Dollar this morning. Market participants look forward to Swiss trade balance and the KOF leading indicator data, due next week.