European Debt Woes Continue

The continued negative news flow from Eurozone is expected to put pressure on the Euro, against Sterling and the US Dollar. Moody's Investors Service downgrade of Italy's government bond ratings by three levels has exerted further pressure on the Euro. Dexia SA’s planned break-up due to funding issues and its significant exposure to Greek debt, also signals towards the deteriorating state of the European banking sector. We foresee no immediate respite for the Euro, as tensions prevail, with Eurozone finance ministers delaying a crucial aid payment to Greece until mid-November. We continue to expect Sterling to advance against the Euro in the near term, as perceived market risk about European assets would drive investors towards the relatively safer Sterling.

Pound Sterling – UK Markets

Sterling is trading lower against the US Dollar, amid market expectations that Bank of England (BoE) would announce additional quantitative easing to boost the economy. We expect Sterling to witness increased selling pressure against the US Dollar in the near term, amid receding risk appetite amongst traders, attributable to mounting concerns in Eurozone. Market sentiment towards the currency was also hit, after S&P yesterday, hinted a strong possibility of another recession in Western Europe, and lowered its UK economic growth forecast. Vital economic indicators on tap today are the Gross Domestic Product and Current Account figures.

US Dollar – US Markets

The US Dollar has moved higher against Euro, after the Federal Reserve Chairman, Ben S. Bernanke, signaled willingness to shore up measures to boost US growth. We expect the currency to continue its upward momentum, as traders seem to be risk averse, on account on the prevalent global economic scenario. However, gains in the US Dollar were trimmed, amid market expectations for a weak private sector job report and ISM Non-Manufacturing PMI, both scheduled for release later in the day. The US Dollar is expected to find further direction from nonfarm payrolls report to be published on Friday.

Euro – European Markets

The Euro continued to slip against the US Dollar, after Moody’s Investors Service lowered Italy’s credit rating three notches to “A2” from “Aa2”, and cautioned that European countries with debt ratings below the top “Aaa” level might see their rankings lowered. We expect the Euro to witness increased selling pressure in the near term, as persistent debt woes and signs of economic slowdown, might compel the European Central Bank to lower its benchmark rate at its meeting scheduled tomorrow. Additionally, expectation of a large decline in Eurozone retail sales is also weighing on investor sentiment. Worsening the scenario is the inability of European leaders to come up with a concrete solution for the region’s debt crisis. Yesterday, the Euro ended higher against the US Dollar, on reports that the European Union ministers are discussing comprehensive plans to recapitalise the ailing banks.

Other Currencies – Highlights

The Australia Dollar has strengthened against the US Dollar, following better-than-expected Australian retail sales in August. The currency was trading under pressure in initial trading, as investors seemed to be wary about the dismal conditions in global equities and commodity markets, thereby prompting them to move away from high-yielding currencies. We expect the Aussie to be under pressure against the US Dollar going forward, as concerns about the state of the global economy would continue to dominate market sentiment. The JPY is trading higher against the US Dollar. Bank of Japan Governor, Masaaki Shirakawa, offered a downbeat assessment of the country's economic outlook. He indicated that his view of the nation’s economic outlook is “very severe”, and that the central bank is taking “strong” monetary easing steps to support the economy.