Political Optimism…

Political uncertainty in the Eurozone seems to have eased, favouring the Euro against the major currencies. Reports suggest that former European Commissioner, Mario Monti, is set to be chosen as the new Italian Prime Minister, after Italy’s Senate vote on debt reduction measures today. Adding to the optimism, former European Central Bank (ECB) Vice President, Lucas Papademos, has been appointed to head the new cabinet in Greece. Meanwhile, after a surprise increase in the asset purchase programme last month, the Bank of England (BoE) took a breather, yesterday, at its rate setting meeting, and kept the interest rate and asset purchase target unchanged. With a light UK economic calendar on tap today, we expect a cautious rebound in the Euro against Sterling, amid retreating Italian bond yields and encouraging positive political development in the Eurozone.

Pound Sterling – UK Markets

The Pound is trading weak against the major currencies, amid concerns over a possible slowdown in the UK economy and improving political scenario in the Eurozone. The European Commission in its economic forecast, yesterday, warned that the British economic growth would be much slower than expected, with Britain’s prospects being “uncertain”. Yesterday’s BoE decision to leave its benchmark interest rate and asset purchase program unchanged did not have a remarkable impact on Sterling. However, market participants expect the BoE to implement further easing measures in the future to spur the economy. On the economic front, data scheduled to be released today is expected to indicate a slowdown in the producer price inflation in October, bolstering market speculation that inflation would not hinder the central bank from implementing further easing measures.

US Dollar – US Markets

The US Dollar has been volatile in trade against the major currencies, this morning. The indications of resolution of the political crisis in Italy and Greece have favoured the Euro to move higher against the USD this morning. Meanwhile, defending his aggressive monetary easing stance, the Federal Reserve Chairman, Ben Bernanke, has stated that the central bank was "intently" focused on lowering unemployment. However, he has cautioned that the European debt crisis could be a major threat to the global economy. Further direction of the US Dollar against the major currencies is expected to be driven from the release of Reuters/University of Michigan consumer sentiment index later today, which is expected to be largely positive.

Euro – European Markets

Easing concerns over political deadlock in Italy and Greece, led the Euro higher against Sterling and the US Dollar. According to reports, former European Commissioner, Mario Monti, is set to be chosen as the new Prime Minister of Italy, and former European Central Bank Vice President, Lucas Papademos, has been appointed to head the new cabinet in Greece. The Euro witnessed increased buying activity against the majors, yesterday, after Italy successfully completed the auction of €5 billion one-year bill, following the purchase from ECB. With no major economic releases scheduled for release today, the Euro is likely to continue to gain strength against its major counterparts, ahead of Italy’s Senate vote on debt reduction measures today, in an attempt to avert a Eurozone meltdown.

Other Currencies – Highlights

The Japanese Yen is trading higher against the majors, amid growing speculation that central banks across the world may use easing measures to spur growth in their ailing economies. Yesterday, Indonesia joined Brazil and Australia in lowering borrowing costs to boost spending. Meanwhile, US Treasury Secretary, Timothy F. Geithner, has stated that Europe remains the “central challenge” to growth. Worried about the Yen’s appreciation, Japanese Finance Minister, Jun Azumi, has stated that he is on guard against speculative Yen trades. On the economic front, data indicated a deceleration in the Japanese tertiary industry activity in September and a decline in domestic corporate goods prices for October.