Market News & Insights
1 September 2014

Central Banks Back in Focus

EUR/USD 1.3130
GBP/USD 1.6637
GBP/EUR 1.2671 (0.7892)
EUR/CHF 1.2062
GBP/CHF 1.5283
GBP/AUD 1.7800

Friday saw the last trading day of August and with it higher stock markets. European markets enjoyed their first monthly rally since May, supported by the prospect the ECB will look to announce additional easing in coming months (if not this week), while in the US stocks also closed higher as the US economy continues to show signs it is approaching exit trajectory, and potentially a time frame where the US Fed may look to begin their rate hike cycle. The S&P closed the week above the key 2000 level. The EUR closed off seven straight weeks of decline against the USD, the longest losing streak in more than a decade, while GBP has also rallied from recent lows, if anything supported by the lack of data from the UK last week.

September welcomes the return to normal trading as we put summer trading conditions behind us, the US is on a bank holiday today and US markets remain closed, but there is still plenty on the economic calendar for the rest of the week to keep us busy. Central bank meetings will be taking centre stage with policy announcements from the RBA, The BOC, the BOE and the ECB to name just a few. The ECB is likely to be the most watched meeting as expectations continue to rise the ECB will look to announce further easing measures in coming meetings, while no change is expected from the RBA, BOC or the BOE.

The US session may well be a little quieter than usual but that will not impact the busy European docket we have this morning. We have already had significant data released from Germany, confirming Q2 GDP was at .8%, although larger falls in capital investment and construction investment were recorded versus what was initially guided and will once again highlight concerns for Europe’s core. Manufacturing PMI data is due across the wires this morning and is expected to remain unchanged through August, although still just above the contraction/expansion level, at 50.8. Services and composite PMI figures for the whole region will be out on Wednesday and this should go some way towards shaping expectations for Thursday’s ECB meeting.

The pound should also find data a little more supportive this week, GBP has faced selling through much of the last month as interest rate hike expectations have shifted, the UK economy however continues to remain in a stable position despite a slight slowdown through H2. Manufacturing PMI data and mortgage approvals cross the wires this morning, with construction and services PMI due for release over the next two days, with the BOE finally due on Thursday. The BOE has seen a shift in voting with two members voting for hikes in the last MPC meeting, any indications the tide continues to turn may well see a revival in GBP fortunes following 8 weeks of underperformance.