A Difficult Day for Osborne

In the much awaited U.K. Autumn statement today, the Chancellor is expected to signal a rise in borrowings in the near term, as the sluggish economy has put Osborne’s austerity plan in disarray. To add to his woes, the Office for Budget Responsibility is expected to slash its UK economic growth projections. Given the lethal mix of higher borrowings and weaker growth, the nation maintaining its prized “AAA” rating remains an uphill task. With the Greek deal offering some much needed respite, the Eurozone finance ministers expressed confidence that Greece would cross the bond buy back hurdle. Apart from developments from the US political arena, today’s services and ADP employment data would hold significance for traders.

Pound Sterling – UK Markets

In the keenly eyed Autumn statement later today, the UK Chancellor, George Osborne, is widely seen extending his plans to balance the budget by one year to 2018. With tax receipts falling below targets and with latest public borrowing surpassing estimates, markets are bracing for the Chancellor to increase his borrowing plans for the near term. In the midst of anaemic growth in the UK economy, the OBR is expected to axe its economic growth forecasts for the UK. In today’s trading session, the Pound is looking for direction against the majors, with some volatility expected following the Autumn statement. Data just out has showed that the services sector in the UK continued to expand for November, albeit at a slower pace. Meanwhile, the underlying weakness in the economy continues to poses a threat to economic growth, as the British Chambers of Commerce downgraded its 2013 growth forecast for the UK economy. Apart from some macro data across the Atlantic, traders will undoubtedly keep an eye on today’s Autumn statement and the BoE’s monetary policy meeting tomorrow for further direction to Sterling against the majors.

US Dollar – US Markets

The US Dollar has continued to trade under pressure against both the Euro and Sterling this morning, as optimism following Greece’s announcement of its buy back programme prompted traders to move away from safe haven currencies. Moreover, prospects for the Chinese economy continue to get brighter, as the Chinese Communist Party Chief, Xi Jinping, assured that the government would aim to stabilise exports and make policies more effective. With less than a month left for the budget cuts and tax increases from coming into effect, the US President, Barack Obama, stood firm on his stand for raising taxes on wealthy Americans. However, some common ground seems to have been reached, as the President expressed his willingness to the Republican demand for a broad US tax code revamp. On the economic front, data from the ISM showed that business conditions in New York rebounded in November, despite many parts of the city being crippled by the Hurricane Sandy. The ADP employment data due later today is expected to set the stage for this week’s non-farm payrolls figure, while the ISM services index will shed some light on the state of the services sector in November .

Euro – European Markets

The Euro has continued to show strength and is trading above the 1.31 mark against the greenback this morning on growing optimism that Greece would successfully complete its bond buying plan, paving way for the nation’s lenders to dispatch the next aid tranche. Similar optimism was expressed by most of the Eurozone leaders in yesterday’s meeting though some leaders who opted to stay silent until Greece announce the final results. Receding worries about Greece sent peripheral bond yields lower in yesterday’s session, offering strength to the Euro. Against this backdrop, the Spanish borrowing costs are set to fall further in a bond auction due later today. To further aid sentiment, the European finance ministers approved the disbursement of a €39.5 billion aid to the Spanish banks, as formally requested by the nation. Apart from crucial economic data from the US, traders will track the Eurozone retail sales data scheduled later today for further cues from the economic front. Besides, the ECB’s monetary policy meeting in tomorrow’s session is also expected to influence market sentiment.

Other Currencies – Highlights

The Japanese Yen has weakened against its major peers in today’s trading session, as further monetary stimulus for the Japanese economy remains on cards, after the BoJ Deputy Governor, Kiyohiko Nishimura, indicated that the central bank stands ready to take necessary and bold monetary policy action, if required. Traders also fret the possibility of the opposition party head, Shinzo Abe, being appointed as Japan’s next leader in the general election slated this month, as he is seen to put pressure on the BoJ to further loosen its monetary policy. Besides, waning risk appetite also weighed on the Japanese Yen, as Greece is widely seen clearing its bond auction hurdle and the Chinese Communist Party chief, Xi Jinping, vowed to take essential measures to stabilise the country’s exports. With no major Japanese economic data on tap for the current week, traders will stay watchful about developments in the US and the Eurozone for further direction.