Zero Growth Forecast for the UK Economy

Today’s focus will be on a series of vital economic releases which could set the tone for Sterling and the Euro. The Bank of England (BoE) Minutes, scheduled for release today, will be the most important event, with Sterling expected to be pushed lower as the MPC is likely to signal its support for additional quantitative easing. The BoE policy maker, David Miles’ statement that the UK’s recovery has faltered and that growth is now “close to zero,” reconfirms the view that the domestic economic outlook continues to deteriorate. However, heightened concerns over fresh developments in the Eurozone could lend support to Sterling against the Euro. Eurozone worries further flared as reports suggested that Belgium and France are in talks over a rescue plan for the Dexia. Fears of contagion spreading to France could drive the Euro lower against the majors. Additionally, in data just released, Purchasing Managers' Indices for France, Germany and the Eurozone indicate a contraction in November.

Pound Sterling – UK Markets

The Pound is trading lower amid speculation that BoE minutes, slated for release later today, will provide signals that the central bank might deploy additional stimulus in the near future. Growing concerns over the health of the British economy are weighing heavily on Sterling. A survey of 68 top city institutions by the Bank of England , found that 54% of respondents believed the possibility of an imminent “High-Impact” event, e.g. the collapse of the euro or another Lehman Brother fiasco. Following the weak housing data from Rightmove, BoE’s MPC member, David Miles, indicated that the housing market is unlikely to ever recover from the financial crisis. He also stated that the housing market and the mortgage market will not return to the pre-crisis levels. Data set for release later today from the British Bankers' Association is expected to indicate a drop in UK mortgage approvals for October.

US Dollar – US Markets

The US Dollar has climbed against the majors in trading this morning, as mounting concerns over the European debt crisis and a weaker-than-estimated third quarter economic growth in the US, prompted investors to seek safe haven assets. Although the FOMC minutes revealed a division of opinion within its members over further monetary easing, the Federal Reserve indicated that it is ready to act if the sluggish US economy takes a significant turn for the worse. The major economic release taking center stage today is the durable goods orders, which is anticipated to contract in October, and could weigh on investors risk appetite. Other key releases later today include the Reuters/University of Michigan index and initial jobless claims.

Euro – European Markets

Fears of an increased fiscal burden on France has knocked the Euro lower, after reports suggested that Belgium and France are in talks over a rescue plan for Dexia. Rising bond yields at the Spanish T-bills auction yesterday fuelled speculation that Europe would be unable to contain its sovereign debt crisis. Investors keenly await the European Commission’s draft report scheduled for release later today, which is expected to recommend commonly issued Eurozone bonds. In data just released the Eurozone composite PMI came in at 47.2 in November, up from 46.5 in October, but is still indicative of a contraction. Eurozone industrial orders data is another key economic release which is due later today and is expected to be largely negative. Given overall negative sentiment the currency is likely to move lower against the majors today.

Other Currencies – Highlights

The Canadian Dollar is trading lower against the safe haven currencies amid concerns of a slowdown in the global economy. Data released yesterday revealed a slower-than-expected third quarter US GDP growth. Meanwhile, earlier today the HSBC’s Chinese manufacturing PMI slipped to the lowest level in 32-months, fuelling concerns over the growth prospects of the emerging nations. Traders have turned risk averse as equity markets across Asia and Europe trade lower. Additionally, the fall in crude oil prices has also weighed on the Loonie. The Canadian Dollar strengthened in yesterday’s trading session, after data indicated a stronger-than-expected rise in Canadian retail sales for September.