Euro, Pound Give up Gains

A spate of weak economic releases and continuing Eurozone concerns are leading the Euro and the Pound to trade weak in volatile trade this morning. The annual increase in the German Harmonized Index of Consumer Prices has been revised higher in September, and consumer price inflation in the Eurozone has been hovering above the ECB’s target rate of 2%. Higher inflation rates in European countries may prevent the European Central Bank (ECB) from implementing easing measures. Data released yesterday, which indicated that unemployment rate in the UK rose, has fuelled market concerns over a double-dip recession in the country, and the possibility of further monetary easing from the BoE. Markets are also expected to closely monitor the UK visible trade deficit data, which is expected to fall to £8.8 billion from £8.9 billion in July.

Pound Sterling – UK Markets

Sterling is trading lower against the US Dollar, amid ongoing speculation that the Bank of England (BoE) might show increased willingness for easier monetary policy. BOE’s Charles Bean has cautioned that the outlook for the UK economy had worsened in the past 3-4 months, and if the weakness persisted an additional round of quantitative easing may be needed. Yesterday’s job data showing the highest number of unemployed in Britain since 1994, have renewed concerns over growth. Economic release taking centre stage today is the British Trade Balance for August, which is expected to indicate a contraction.

US Dollar – US Markets

The US Dollar has rebounded this morning, as uncertainty returned to haunt expectations of an early solution to Eurozone’s debt problems. The currency gained despite the minutes of the Federal Reserve’s latest meeting revealing that the central bank is quickly running out of policy tools, and would likely have to resort to QE3 if the economy continues to be under pressure. Although the Federal Reserve’s overall assessment remained gloomy due to the weak labour and housing markets, it highlighted the improvement in real consumer and business spending, and the rebound in government purchases in August. Meanwhile, markets are expecting a rise in jobless claims and a wider trade gap, in data releases later today. Tomorrow, Advance Retail Sales report is due and could hold the key to the movement of the US Dollar early next week.

Euro – European Markets

The Euro is trading lower against the US Dollar, ahead of the speech of European Commission President, Jose Barroso. He, yesterday, called for a “coordinated approach” to recapitalise the region’s banks, which had earlier led to optimism towards the Euro. Highlighting the gravity of the situation, ECB Executive Board Member, Jose Manuel Gonzalez-Paramo, also warned that maintaining non-conventional measures adopted by the central bank for a longer period could trigger imbalances and contribute to a new crisis in the future. Meanwhile, German Consumer Price Inflation has risen unexpectedly, to a three-year high in September, making things difficult for the ECB. We expect that the Euro would be volatile against the US Dollar in trading today.

Other Currencies – Highlights

The Australian Dollar is trading flat against the US Dollar, even though it had initially risen following a decline in the unemployment rate in Australia in September. Concerns over slowdown in emerging economies capped gains in the Aussie, as the strong employment data was overshadowed by weak Chinese trade data. Chinese trade surplus narrowed for the second successive month, largely due to a drop in exports. The International Monetary Fund (IMF) in its latest Regional Economic Outlook for Asia and the Pacific lowered its growth forecast for the region to 6.3% in 2011 and 6.7% in 2012, which is lower than the agency’s forecast in April.