Euro gets backing, ahead of key event risks…

Better-than-expected Gross Domestic Product (GDP) data in the UK released yesterday, and the Greek cabinet’s backing to George Papandreou’s referendum proposal appears to have encouraged investors to take higher risk. The backing from the cabinet has helped ease concerns over an early election in Greece and is expected to be positive for the Euro against Sterling in the near term. Meanwhile, investors would be keenly eyeing the Federal Open Market Committee rate decision today, European Central Bank rate setting meeting tomorrow, US non-farm payrolls data on Friday and the G20 meeting, all of which are likely to influence the key currencies in the near future.

Pound Sterling – UK Markets

Yesterday’s euphoria surrounding the GDP growth in the UK, which surpassed market expectations, was supported by comments from the Chancellor of the Exchequer‎, George Osborne, who stated that the figures represented a "step forward". However, optimism around the data seems to have taken a backseat today, following the events unfolding in Greece. Additionally, Bank of England (BoE) policymaker, Adam Posen’s comment that “premature policy tightening” and “insufficient stimulus” threaten to stem the country’s economic growth, provided boost to speculation over further monetary easing in the near future. Data just released has shown an improvement in the UK construction Purchasing Managers’ Index for October. With Sterling trading weaker against the Euro, this morning, we expect the pair to find further direction from the events unfolding in the Eurozone.

US Dollar – US Markets

The US Dollar has weakened against the Euro and Sterling, this morning, amid speculation that the Federal Open Market Committee (FOMC) rate setting meeting may signal another round of quantitative easing. Additionally, improvement in investors’ risk appetite post the Greek cabinet backing of the referendum plan has also dented investor demand for the US Dollar as a safe haven asset. Downbeat economic indicators in the US are also weighing on the US Dollar against the major currencies. Data released yesterday indicated that the Institute for Supply Management’s factory index declined in October, while data scheduled for release tomorrow is expected to show that factory orders dropped in September. The US Dollar is expected to trade lower against the Euro and Sterling in the near term, and would take further cues about its direction from the outcome of the FOMC meeting.

Euro – European Markets

The Euro is trading higher against Sterling and the US Dollar, this morning, after Greece's cabinet decided to back Prime Minister, George Papandreou's plan for a referendum on the European Union aid deal, thereby easing concerns over a snap election. However, Fitch Ratings has stated that the proposed Greek referendum on the country's bailout is a threat to the financial stability of the Eurozone. Meanwhile, traders are keenly awaiting the outcome of the European Central Bank rate setting meeting, scheduled for tomorrow, which is expected to be a little tricky for the incoming European Central Bank President, Mario Draghi. We expect the Euro to trade higher against Sterling and the US Dollar in the short term.

Other Currencies – Highlights

The Canadian Dollar is trading higher against the US Dollar, this morning, ahead of the crucial FOMC meeting scheduled today. Canadian Finance Minister, Jim Flaherty, has stated that the government will announce the range in which the central bank seeks to maintain inflation once it completes its review. Meanwhile, Bank of Canada Governor, Mark Carney, has indicated that the outlook for the Canadian economy has softened since July and added that the “less-favorable external environment" weighed on the country’s economy. We expect the Canadian Dollar to trade higher against the major currencies in the near term.