Firm Support, But No Action?

At the weekend meeting in Paris, the Group of 20 (G-20) finance ministers and central banks pledged to provide the necessary help to resolve the debt crisis in the Eurozone, however offering no concrete action plan. Market speculation suggests that European officials might not be able to adhere to the deadline for this month to come up with a plan to contain the region’s debt crisis. According to reports, one of the key hurdles for the delay is the resistance from bankers to a larger haircut on Greek debt. Meanwhile, German Finance Minister, Wolfgang Schaeuble, has indicated that the debt crisis in Greece could not be solved without larger write-downs on Greek debt. Further developments on the measures to be undertaken to resolve the debt crisis in the region will determine the direction of the Euro trading against Sterling this week.

Pound Sterling – UK Markets

Sterling is trading marginally lower against the Euro, this morning, on market expectation of positive news flow from Europe during this week. Additionally Ernst & Young LLP’s ITEM Club has lowered its UK growth forecast for 2011 and 2012. Data due tomorrow is expected to indicate that the UK annual consumer price inflation rose in September. With no major economic releases in the UK and Europe today, we expect Sterling to be volatile against the Euro in trade today, based on cues from the Eurozone.

US Dollar – US Markets

The US Dollar is trading lower against the Euro, this morning, amid increased demand for riskier assets, following gains in the Asian equities, and a firm start to the European equity trading. Additionally, Friday’s robust US retail sales report has boosted investor confidence and prompted them to shift towards high yield assets. The US Dollar is likely to find direction from key economic reports scheduled for release later today, that are expected to indicate that US industrial production grew in September, and that manufacturing sector activity rebounded in October.

Euro – European Markets

The Euro is trading higher against the US Dollar, this morning, amid market expectations of a solution to the Eurozone debt crisis. The leaders, in the weekend G-20 meeting, have set a deadline till the next week, to chalk out a comprehensive strategy to resolve the sovereign debt crisis. However, the major obstacle to the formulation of a sound plan is the resistance from bankers to a deeper restructuring of Greek debt, as well as disagreements over the enhancement of the bailout fund and recapitalisation of financial institutions. With no major economic releases scheduled for release today, the Euro is expected to take cues from news flow in the run up to the EU meeting on 23 October.

Other Currencies – Highlights

The Aussie Dollar has recovered from its initial losses against the US Dollar and is trading higher, this morning, ahead of the release of minutes of Reserve Bank of Australia’s (RBA) latest monetary policy meeting. Signals from the central bank on inflation outlook and the timing of any possible interest rate cut is expected to provide direction to trading in the pair. Markets are increasingly expecting a rate cut by the end of the year. Data this morning indicated that new vehicle sales in September declined for the first time in four months, raising expectations of a policy intervention. Earlier, the RBA Governor, Glenn Stevens, had stated that “an improved inflation outlook would increase the scope for monetary policy to provide some support to demand”. Additionally, markets will be closely monitoring China’s Gross Domestic Product and industrial production data slated for release tomorrow.