UK Outlook Remains Cloudy

In the UK, industrial production data just out has provided further evidence that the UK economy is navigating through troubled waters, raising eyebrows ahead of the NIESR GDP estimate due later today. Meanwhile, the BoE once again embraced its “wait and watch” approach yesterday by keeping further monetary stimulus inclinations at bay. In contrast to the BoE meeting, developments from the ECB meeting ruffled a few feathers, as the ECB Chief offered a dismal outlook for the region’s economy that weighed heavily on the Euro. With the weekly session coming to an end, the crucial US non-farm payroll figures will be the highlight today, given its importance to the Fed’s policies.

Pound Sterling – UK Markets

The Pound staged a recovery against the Euro, after the ECB President, Mario Draghi, indicated that there were downside risks to the region’s economy. However, Sterling failed to capitalise on recent gains against the greenback, as traders flocked to safe haven currencies in the midst of prevalent growth concerns in the Eurozone. At the BoE meeting yesterday, the MPC members decided to retain the benchmark interest rate and asset purchase target at current levels. However, minutes of this meeting due for release later in the month will be closely watched, in order to gauge the stance of policymakers following a significant shift in Britain’s fiscal policies. In today’s session, the Pound is trading flat against the greenback and has maintained its gains against the Euro. However, data just out has indicated an unexpected drop in Britain’s monthly industrial production for October. Apart from the crucial US labour market data, traders will also keep an eye on today’s NIESR GDP estimates in the UK, given the recent weak economic growth outlook provided by the OBR.

US Dollar – US Markets

The US Dollar nudged higher against its peers and covered significant ground against the Euro yesterday after the ECB President, Mario Draghi, indicated that recessionary trends in the Eurozone economy would prolong for a few more quarters. The trend has continued this morning, with the greenback maintaining its gains against the common currency, after the Asian Development Bank cut its 2012 and 2013 economic growth estimates for developing economies in Asia. There was some good news to cheer from the US, as the nation’s job market showed signs of stability, with jobless claims continuing its downward trend last week. This has shifted focus to today’s non-farm payrolls figure, which is likely to show some slowdown in hiring momentum as Hurricane Sandy took its toll on the labour market in the initial phase of November. Meanwhile, the Reuters/Michigan consumer sentiment reading later today is expected to shed some light on consumer morale ahead of the Christmas period. With the weekly session coming to a close, traders will track developments from the “fiscal cliff” negotiations during the weekend.

Euro – European Markets

The upward momentum in the common currency came to a grinding halt in yesterday’s trading session and slipped below the 1.30 mark against the US Dollar, as the ECB President, Mario Draghi, indicated that the central bank’s governing council discussed slashing the overnight deposit rate to below zero for the first time and added that they were operationally prepared to do so, if warranted. Moreover, the ECB expects the Eurozone economy to contract 0.3% next year, compared to its previous assumption of a 0.5% growth. To add to the woes, data confirmed that the Eurozone economy remained mired in a recession for the third quarter. Meanwhile, the Italian economy is back focus, as Silvio Berlusconi’s party has withdrawn support for the Italian Prime Minister Mario Monti’s government in a Senate vote on a key economic reform bill. Market participants are seeing this as a first step that could lead to the fall of the government and could even necessitate snap elections. With data showing a sharp recovery in German factory orders for October, today’s focus will be on German industrial production figures for insights into the manufacturing sector.

Other Currencies – Highlights

The Aussie Dollar has declined marginally against the US Dollar this morning after data revealed that Australia’s trade deficit widened for October. Moreover, concerns over Asian economies prevailed, as the Asian Development Bank lowered its growth forecast for developing Asian economies. However, the Aussie Dollar has managed to cap its losses against the majors amid hopes that the Reserve Bank of Australia might refrain from lowering its benchmark interest rate in the near future, following upbeat labour market data released yesterday. Among other domestic economic releases, data showed a fall in Australian foreign reserves, while the performance of the construction index climbed for November. With a light domestic economic calendar today, all eyes will hover around economic data from the US and the Eurozone for further direction.