Chancellor George Osborne faces a daunting task today as he announces measures to instill growth into the weak UK economy. The Organization for Economic Co-operation and Development (OECD)’s latest forecast of anemic economic growth for the UK and rising domestic unemployment levels, have sparked fears that the UK is plunging back into recession. Yesterday, UK retail sales unexpectedly fell in November at the fastest pace in almost three years. Contact your dealer if you have any questions about potential currency fluctuations following today’s financial releases.
Eurozone finance ministers are expected to meet later today to approve arrangements for scaling up the European Financial Stability Facility rescue fund. The region continues to reel from further warnings of ratings cuts. Moody’s is considering lowering debt ratings for banks in 15 European countries, reflecting the potential removal of government support. Additionally, La Tribune has reported that Standard & Poor’s (S&P) may change the outlook on France’s “AAA” rating to “Negative” within the next 10 days.
Pound Sterling – UK Markets
The Pound is trading higher against the Euro as markets await George Osborne’s autumn statement due later in the day. The Chancellor is expected to outline plans to boost infrastructure, spending and support for small businesses, to help revive the UK's sluggish economy.
Additionally, he is expected to confirm that growth will be lower and borrowing much higher than planned. Markets are expected to closely monitor the Office for Budget Responsibility’s prediction of unemployment rates in the country for 2012.
Concerns over economic growth continue to persist. The OECD has warned that Britain is on the brink of recession, stating that anemic growth has blown a £50 billion black hole in the Chancellor's deficit reduction program and that the Bank of England (BoE) will have to pump in another £125 billion of stimulus to salvage a recovery. Meanwhile, BoE Governor, Mervyn King warned that the crisis in the Eurozone has cost the UK almost £15 billion in lost economic activity.
US Dollar – US Markets
The US Dollar is trading lower against the majors after Fitch Ratings revised its outlook on the US’ credit rating to ‘Negative’, from ‘Stable’, on the back of the Congressional committee’s failure to agree on deficit cuts. Additionally, growth concerns continue to persist after OECD lowered its estimate for US growth to 2.0% in 2012, from an earlier estimate of 3.1%.
Meanwhile, high yielding currencies were in demand as traders are willing to take positions in riskier assets following reports that leaders in the Eurozone are working towards a solution to tackle the regions’ debt crisis.
Developments in Europe will largely dominate trading today.
Euro – European Markets
Optimism that European policymakers will arrive at an agreement on operational guidelines for leveraging the region’s rescue fund, has aided the Euro to consolidate gains against the majors. Moreover, finance ministers are also expected to approve the next tranche of emergency loans for Greece and Ireland.
However, concerns over the European financial system continued to weigh on sentiment following, the aforementioned, Moody’s potential downgrading of several European banks.
We expect the Euro to be volatile in trade today and take cues from the outcome of the meeting of the regions’ finance ministers and the Italian bond auction worth about €3.5 billion, scheduled today.
Other Currencies – Highlights
The Aussie Dollar is trading higher against the major currencies after Fitch Ratings upgraded Australia's foreign currency Issuer Default Rating (IDR) to ‘AAA’ from ‘AA+’ with a 'Stable' outlook. Moreover, the local currency rating, as well as the country ceiling, was affirmed at ‘AAA’, while retaining ‘F1+’ rating for short-term foreign currency IDR.
The Australian government has lowered its economic growth forecasts for this fiscal year and the next, citing deterioration in global economic and financial conditions. However, it indicated that the economy is on track to deliver a budget surplus in 2012-13, despite challenges to the near-term fiscal outlook. We expect the Aussie Dollar to trade higher against the majors today.
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