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18 Jun 2014
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18 June 2014 (Currency Solutions)

BoE Policymakers Support Carney’s View

On expected grounds, most of the BoE policymakers offered support to Mark Carney view that the economy is improving and thereby the central bank might hike interest rates sooner than markets expected. However, with yesterday’s dismal data, it remains to be seen what measures the central bank might adopt in the future to tackle the overheating domestic housing market and slowing inflation. Across the Atlantic, the Fed is widely expected to continue with its stimulus tapering but Janet Yallen’s post meeting comments will be keenly eyed for guidance on where interest rates will head.

In Euro zone, investors might prefer to remain on the sidelines in order to gauge the impact of policy measures announced this month, especially after yesterday’s disappointing German ZEW survey.

Pound Sterling – UK Markets

The Pound is trading on a firmer footing against the greenback this morning following the release of BoE’s latest policy meeting minutes. Most of the policymakers supported last week’s Mark Carney’s view, for a sooner than expected hike in its interest rates, given that the nation’s economic recovery remains on a steady path. Policymakers unanimously voted to keep key interest rate unchanged, but reiterated that the decision to raise rates is becoming “more balanced”, though they need to see more evidence of improvement before increasing the key rates. Against this backdrop, speeches from some of the BoE officials will be keenly eyed for more clarity on the central bank’s monetary policy plans. Additionally, investors in the Pound-US Dollar pair will keep a close watch on today’s US Fed policy meeting outcome along with the Fed Chief, Janet Yellen’s speech for further direction to risk appetite.

The Pound dropped against the US Dollar and the Euro in yesterday’s trading session after data revealed that UK inflation eased more than expected to its lowest level since October 2009 for May, on the back of falling food and air fares prices while a separate report indicated that the house price continues to rise at a faster pace for May.

US Dollar – US Markets

The US Dollar was in demand during yesterday’s session after data showed a surprise acceleration in US consumer prices for May. Consumer prices in the US rose for the first time by more than 2% since October 2012, thereby firming views that the US economic growth is gaining steam during the second quarter. Furthermore, with the FOMC meeting being a key event on traders’ radar, yesterday’s inflation data appears to have offered credence to belief that the US is possibly approaching the end of the low interest rate regime.

Meanwhile, the greenback is trading in a tight range against its major peers this morning. With mostly upbeat macroeconomic reports in the US off late, the Fed is widely expected to taper its bond buying programme by another $10 billion today. Most of the investors’ will remain glued to the post meeting press conference by the Fed Chief, Janet Yellen, for possible hints on the future course of interest rates in the US. Additionally, market participants will keep a close watch on the FOMC economic projections as the US Fed is widely expected to lower its GDP forecast for this year, given that the growth contracted during the first quarter and the unemployment rate likely to be revised down while inflation outlook to be revised higher.

Euro – European Markets

The single currency dropped against the US Dollar after data indicated that US consumer price inflation unexpectedly ticked higher, thereby firming views for a sooner than expected hike in benchmark interest rates in the US. Moreover, data released earlier indicated that German investor morale fell unexpectedly for June to its lowest level in about one and a half year, thereby signaling no significant improvement in overall sentiment in the aftermath of the unprecedented measures adopted by the ECB. Yields on peripheral Euro zone bonds have also registered an uptick from the multi-year lows witnessed last week.

Meanwhile, the common currency is trading in a tight range against its major peers this morning. With no major economic releases in Europe today, markets will keep a close watch on today’s US FOMC policy meeting outcome along with a speech from the US Fed Chief for further direction. Additionally, events unfolding in Eastern Europe and the Middle East will keep investors on their toes.

Other Currencies – Highlights

The Japanese Yen is trading in a tight range against the greenback this morning. The minutes of the BoJ latest monetary policy meeting held in May revealed policymakers are of the views that the central bank’s massive policy measures are having the desired effects on the economy. The BoJ policymakers also agreed that domestic exports were likely to rise moderately on the back of recovery in the overseas economies, however, downside risk to exports prevail due to lingering political crisis in other countries. Meanwhile, the Japanese Yen dropped against the US Dollar yesterday as encouraging US inflation data bolstered hopes that the Fed would continue winding down its stimulus measures and might soon plan to hike interest rates.

With no major domestic decisive triggers, markets will keep a close watch on today’s US Fed policy meeting outcome along with the Fed Chief post meeting conference for further direction to risk appetite.

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