With mixed news flows coming from Europe, the direction of the movement of Sterling against the Euro is set to be determined by cues from the Group of 20 (G-20) finance ministers meeting, aimed at discussing plans to tackle Europe's debt woes. According to reports, emerging-market nations are considering an increase in the lending resources of the International Monetary Fund, which might help restrict the Eurozone crisis from worsening further.
Slovakia has finally ratified to enhance the powers of the Eurozone bailout fund, while Standard & Poor's (S&P) lowered Spain’s sovereign credit rating and Fitch Ratings downgraded UBS AG and placed seven other US and European banks on credit watch negative.
Pound Sterling – UK Markets
With no significant economic indicator scheduled for release today, the Pound will move on news emanating from Europe. Volatility is high so it would be wise to be in contact with your dealer for the latest updates.
Spain's credit rating downgrade by S&P coupled with Fitch Ratings downgrade of UBS AG is likely to heighten worries about the fragile state of the European economy.
Looking ahead, the most significant factor which impacts the movement of Sterling is any indication of further quantitative easing. Sterling had been under pressure against the Euro in the recent past, on speculation over further monetary easing by the Bank of England.
US Dollar – US Markets
The US Dollar has declined against Sterling and the Euro, this morning, on higher risk appetite of investors.
The G-20 meeting commencing today and the EU summit scheduled on 23 October 2011 have spurred optimism that some global action plan might be delivered to stabilise financial markets.
However, in the initial session today, the US Dollar had gained, after Spain's rating was downgraded, and reports indicated that German banks are preparing for larger losses on Greek exposure.
Today's movement in the US Dollar is expected to take cues from the September advance retail sales report and the University of Michigan confidence survey for October, scheduled for release later today, which are expected to be largely positive.
Euro – European Markets
The Euro had slipped against the US Dollar in the early trading session today, after S&P downgraded Spain’s long-term sovereign debt rating by one notch, and Fitch Ratings Agency placed several European banks on credit watch negative.
However, the Euro regained its composure and moved higher against the US Dollar, on the back of optimism surrounding the commencement of the G-20 meeting today, and Slovakia’s final approval to the Eurozone bailout fund expansion proposal.
Additionally, markets are also awaiting the outcome of the EU Summit scheduled on 23 October 2011.
We expect the Euro to move higher still against the US Dollar today, on market expectations of a positive outcome from the G-20 meeting.
The key economic releases being eyed by traders today include the Eurozone's Consumer Price Index and Trade Balance.
Other Currencies – Highlights
The Aussie Dollar has advanced against the major currencies, after data indicated that Chinese consumer price inflation eased in September, spurring speculation that the People's Bank of China would not raise interest rates in the near future.
Additionally, the currency also found support, amid optimism that policymakers in the G20 meeting would take the required steps to boost the International Monetary Fund’s lending power.
We expect the Aussie to continue to move higher against the majors today.
British Pound Steadies as PM May Survives No Confidence Motion