Japan’s Day Out!

After an eventful last week, with news flow on the Eurozone deal leading to volatility and market uncertainty, it was Japan’s day out on the market floor today. Japan intervened in the foreign exchange markets to weaken the currency for the third time this year. In a speech, the Bank of Japan Governor, Masaaki Shirakawa, stated that the bank expects the intervention to help bring stability to the foreign exchange market. The US Dollar has surged against most of the key currencies this morning, and the most against the Yen. Markets are also looking ahead to further cues this week from a slew of key economic data globally and crucial rate setting meetings in Australia, the US and the Eurozone. Additionally, Europe's debt crisis looks set to again dominate trading, with the summit of Group of 20 leading economies in France from 3-4 November 2011.

Pound Sterling – UK Markets

Sterling is trading weaker against the US Dollar, amid concerns over the health of the UK economy. The Lloyds Bank's business confidence barometer slipped to a 30-month low reading in October, ahead of the crucial GDP data due tomorrow, thereby raising concerns over the possibility of the economy falling back into recession. Additionally, data from Hometrack revealed the fragile state of the UK housing sector, with the housing price index declining for the sixth consecutive month in October. Markets are expected to closely monitor the September’s consumer credit figures slated for release today, which are expected to show a contraction. We believe that the release of preliminary data on the UK GDP tomorrow is the most important economic release this week to decide the direction of Sterling against the major currencies, especially considering the Bank of England’s earlier move in October to expand its asset purchase facility.

US Dollar – US Markets

The US Dollar has climbed against most of the other majors, this morning, after Japan announced intervention in the currency markets. Upbeat US economic data in the recent past, such as better-than-expected growth in the third quarter GDP, has led to market speculation that the US central bank might not resort to further monetary accommodation, at its policy meeting scheduled later this week. Market expects that data scheduled for release today may show that Chicago Purchasing Managers’ Index dropped in October. We expect the US Dollar to trade higher against Sterling and the Euro in the next few trading sessions.

Euro – European Markets

The Euro is weak against most of the major currencies, this morning, ahead of the European Central Bank’s (ECB) rate setting meeting scheduled later this week, which would also be the first meeting of the incoming European Central Bank President, Mario Draghi. The currency has come under pressure recently, after Italy was compelled to pay high interest on its new 10 year debt, on Friday, casting doubts over the nation’s turnaround effort. Adding to the pessimism, data released today indicated that German retail sales grew less-than-expected in September. We expect the Euro to trade lower against Sterling and the US Dollar, as the region’s debt crisis still continues to be a major area of concern for investors. Retiring European Central Bank President, Jean-Claude Trichet, has warned that the crisis is not over, and that rules of the pact need to be comprehensively tightened.

Other Currencies – Highlights

The Yen has weakened against Sterling and the US Dollar, this morning, after Japan intervened in the foreign exchange markets, to weaken the currency, for the third time this year. The Japanese Finance Minister, Jun Azumi, stated that “speculative moves” in the currency failed to reflect Japan’s economic fundamentals. Additionally, the Bank of Japan Governor, Masaaki Shirakawa, has said that he expects the intervention to help bring stability to the foreign exchange market. Meanwhile, economic releases from Japan have been mixed, with data indicating a decline in housing starts in September, while the manufacturing Purchasing Managers' Index rose in October.