Markets on Tenterhooks

After yesterday’s disappointing European economic data, markets are keenly awaiting the outcome of tomorrow’s summit of the Eurozone policymakers, where officials have pledged to come up with a solution to the region’s debt crisis. Sterling has moved marginally higher against the Euro, this morning, amid uncertainty over the Eurozone sovereign debt crisis. However, growth concerns in the UK continue to persist, with the Bank of England’s (BoE) Monetary Policy Committee member, Martin Weale, stating that the there is a higher risk of a double-dip recession in the nation than previously thought. But, with uncertainty still persisting about the solution to the Eurozone debt crisis, we expect to see increased volatility in Sterling against the Euro in the near term.

Pound Sterling – UK Markets

Sterling is trading marginally higher against the Euro this morning. BoE Governor, Mervyn King’s speech scheduled later today is expected to provide further cues of possible policy actions that the BoE might consider in the near future, with current account and BBA loans for house purchase reports also slated for release today. Meanwhile, BoE’s Monetary Policy Committee member, Martin Weale, indicated risk of a double-dip recession in the UK. Sterling’s direction against the Euro in the near term is likely to be determined by the events unfolding in the Eurozone.

US Dollar – US Markets

The US Dollar is volatile against the majors, this morning, as investors remain focused on the outcome of tomorrow’s EU summit. The risk appetite amongst traders seems to lack conviction, as market remains wary about the outcome of the meeting. Meanwhile, New York Federal Reserve (Fed) President, William C. Dudley, has stated the central bank might do more to hold down borrowing costs. However, Dallas Fed President, Richard Fisher, has cautioned that high unemployment in the U.S. is a bigger problem than inflation, and that the Fed might not resort to any further monetary easing. Economic indicators that could provide a direction to the US Dollar’s movement today are the consumer confidence index, S&P/Case-Shiller home price index and Richmond Fed manufacturing index, which are expected to be largely positive. Yesterday’s data had indicated an improvement in the Chicago Fed national activity index for September.

Euro – European Markets

The Euro has been volatile against Sterling and the US Dollar, this morning, as traders are cautiously optimistic, ahead of the EU summit scheduled for tomorrow. Although Sunday’s meeting saw intense efforts by the leaders to stem the crisis, the uncertainty over the outcome remains high. Additionally, German lawmakers are set to meet in Berlin today to start the scrutiny of two leveraging models for Europe’s bailout fund. Data released this morning, has indicated an unexpected improvement in the German and French consumer sentiment index. However, yesterday’s economic data painted a dismal picture of the region’s economy, with contraction in the German and Eurozone’s manufacturing sector activity in October. With no other key economic indicator scheduled for release today, the movement of the Euro against the majors over the short term is expected to take cues from news flows around tomorrow’s meeting.

Other Currencies – Highlights

The Kiwi Dollar is trading weaker against the US Dollar, this morning, after data indicated that, on a sequential basis, the consumer price index in New Zealand rose less-than-expected in the third quarter. The decline in the country’s inflation has spurred market speculation that the nation’s central bank may ease policy to boost growth, thereby pressurising the Kiwi Dollar against the majors. We expect the Kiwi Dollar to trade lower against Sterling and the US Dollar in the short term.