European Woes Aggravate

There seems to be no respite from the current debt woes in the Eurozone, with a German government spokesman indicating that European leaders would not be able to fulfill “dreams” of a quick end to the debt crisis in the region at the 23 October 2011 summit. Moody's Investors Service’s warning of a possible negative outlook on French “Aaa” credit rating, and Portuguese government’s forecast of its Gross Domestic Product (GDP) shrinking more than its earlier estimate, have further highlighted investor concerns. The continuing pessimism surrounding the Eurozone debt crisis is expected to lead the Euro lower against Sterling in the near term.

Pound Sterling – UK Markets

Sterling is trading higher against the Euro, this morning, ahead of UK consumer price inflation data for September that is scheduled for release later today. Markets are expecting annual inflation in the UK to rise to 4.9% in September, from a level of 4.5% in August. With inflation hovering around multi-year highs, market participants believe that the Bank of England (BoE) may find it difficult to implement further easing measures. We expect Sterling to trade higher against the Euro in the near term on persistent concerns around the Eurozone situation. Meanwhile, the Centre for Economics and Business Research Limited has lowered its 2011 UK economic growth estimate, and indicated that the Bank of England may raise its bond-program target to £300 billion by the end of 2012.

US Dollar – US Markets

The US Dollar is trading higher against the Euro, this morning, amid continuing concerns about the worsening Eurozone sovereign debt crisis. We expect the US Dollar to edge higher against the Euro in today’s session on continuing worries about the state of the global economy. The Richmond Federal Reserve President, Jeffrey Lacker, has cautioned that the central bank’s Operation Twist is likely to push inflation higher, with little benefit to the U.S. economic growth. Additionally, the Federal Reserve Bank of Chicago President, Charles Evans, has pointed that the U.S. faces “massive shortfalls” in output and job creation. Markets are keenly awaiting a speech of Bernanke later today, for any clues about QE3.

Euro – European Markets

The Euro has suffered losses against Sterling and the US Dollar, this morning, on concerns about the Eurozone debt crisis. Warning from Moody's Investor Service of a possible negative outlook on France’s credit rating, and a downward revision to Portuguese GDP by its government has reignited concerns about the fragile state of the European economy. We expect the Euro to trade lower against Sterling and the US Dollar in the near term. Economic releases on tap today include German and Eurozone ZEW Sentiment Survey indices. Yesterday, the Euro ended lower against the major currencies, triggered by comments from the German Chancellor Angela Merkel’s spokesman that there would be no quick end to the region’s debt crisis at a meeting scheduled on 23 October 2011.

Other Currencies – Highlights

The Aussie Dollar is trading lower following weaker-than-expected third quarter Chinese GDP growth, which cooled to 9.1% per annum, compared to a 9.5% gain recorded in the previous quarter, confirming a slight slowdown in Australia’s biggest trading partner. However, Chinese industrial production and retail sales, for the month of September, have been broadly ahead of market expectations. Meanwhile, the Reserve Bank of Australia in the minutes of its latest monetary policy meeting has indicated that it could consider lowering interest rates, if there is an improvement in the country’s inflation outlook. We expect the Aussie Dollar to trade under pressure, amid growing speculation that the Australian central bank could lower interest rates in the near future.