EU Summit takes Center Stage

With UK retail sales and consumer confidence out of the way, market participants are now increasingly looking forward to the outcome of the European Union (EU) summit scheduled on 23 October 2011. Reports suggest that European leaders are planning to hold another summit next week, no later than 26 October 2011, wherein officials plan to announce an “ambitious” package to address the persistent sovereign debt concerns in the region. There seems to be some respite from the ongoing crisis in the Eurozone, following reports that the EU may look to expand the European Financial Stability Facility (EFSF) to as much as $1.3 trillion. However, there continues to be little clarity on the issue. Sterling is expected to be volatile against the Euro today, ahead of the EU summit over the weekend.

Pound Sterling – UK Markets

Sterling is trading marginally higher against the US Dollar, this morning, despite data indicating that consumer confidence had declined in the UK in September. We believe that news flows emerging during this weekend from the EU summit holds the key to the direction of Sterling against the Euro in the near term. Meanwhile, it seems that better-than-expected September retail sales yesterday has failed to soothe investor concerns about the fragile state of the British economy. On the economic front, UK public sector net borrowing and public sector net cash requirement data are slated for release today.

US Dollar – US Markets

The US Dollar is trading marginally lower against Sterling, this morning. The US Federal Reserve (Fed) Governor, Daniel Tarullo, has indicated that the US central bank should resume large-scale purchases of mortgage bonds to lower mortgage costs. Meanwhile, St. Louis Fed President, James Bullard, has stated that securities purchases would be the most potent action, and would not rule out another round of QE if there were further deterioration in the nation’s economy. However, yesterday’s economic reports provided some relief to market participants, with data indicating an improvement in the manufacturing activity in the Philadelphia area. With no major economic releases scheduled today, the outcome of the weekend meeting of the European leaders is expected to determine the direction of the US Dollar against Sterling and the Euro, in the short term.

Euro – European Markets

The Euro is trading flat against the US Dollar, this morning, amid a slew of conflicting reports emerging out of the Eurozone region. Reports indicate that the European leaders may consider raising the Eurozone rescue fund to as much as $1.3 trillion to stem the regions sovereign debt crisis. However, Standard & Poor’s (S&P) has indicated that the French credit rating may be downgraded, if the country’s growth rate remains anemic. Additionally, S&P has also raised concerns over the credit rating of Spain, Italy, Ireland and Portugal. There seems to be no respite on the economic front, as well, as data released this morning indicates that business confidence indices in France and Germany have declined in September. We expect Euro to be volatile in trade today, ahead of the weekend EU summit.

Other Currencies – Highlights

The Aussie Dollar and the Canadian Dollar are volatile, this morning, amid uncertainty about the outcome of the EU summit this weekend. On the economic front, data indicates that the export price index in Australia increased, while import prices remained flat in the third quarter. Meanwhile, markets are expected to closely monitor the Canadian consumer price inflation data, which is expected to show a slowdown. We expect the Aussie Dollar and the Canadian Dollar to seek direction from movement in commodity prices, which have been volatile of late.