The Six Billion Dollar Man

While the latest opinion polls suggest that the US Presidential election would be a tight race, the incumbent President might hold a slight majority going into the polls today. In the next few trading sessions, the result of the US Presidential election is expected to remain the focal point for traders, given its influence on the outcome of “fiscal cliff” negotiations. Back at home, industrial production continued to contract, keeping alive a slim chance of the BoE embracing further stimulus measures on Thursday. Market attention is also expected to revolve around Greece, as the government is set to put its belt-tightening measures to a vote tomorrow.

Pound Sterling – UK Markets

The Pound nudged lower against the greenback in yesterday’s session, as downbeat UK services PMI data kept alive hopes of the possibility of the BoE inducing fresh stimulus at its monetary policy meeting later this week. However, Sterling has managed to recover from yesterday’s lows against the greenback and is trading marginally higher against the majors this morning. Data just out has indicated a more than expected contraction in the UK’s industrial production for September. Yesterday, UK Services PMI for October showed that the nation’s dominant services sector expanded at its slowest pace in almost two years, elevating the chances of the UK showing weakness in the fourth quarter. Additionally, the BRC earlier today revealed that British retail sales slowed for October, further denting hopes that consumers will continue to propel the economic recovery. However, the Centre for Economics and Business Research expects the UK economy to grow by 0.8% and 1.4% for 2013 and 2014, respectively. Apart from the NIESR GDP estimate and the BRC shop price data, markets are expected to keep a tab on early trends from the US election for further direction.

US Dollar – US Markets

Safe haven flows continued to propel the US Dollar higher against the Euro in today’s trading session, as looming uncertainty over the outcome of the US Presidential election hampered risk appetite among investors. With the US Presidential election scheduled for today, early developments from the polls are expected to set the trend for the currency markets. National opinion polls show that the current US President, Barack Obama and Republican challenger, Mitt Romney, are locked in a close fight for gaining control of the White House, with the balance slightly in favour of the incumbent President. As per the latest ISM data, the pace of growth in the US services sector slowed modestly in October but the impact of the slowdown was quite muted on the labour market, as data revealed that a measure of employment in the sector rose to its highest level since March 2012. With no major economic release due today, the outcome of the Presidential election is expected to be the key trend setter for risk sentiment in the next few trading sessions.

Euro – European Markets

Uncertainty over the release of next aid tranche to Greece weighed on market risk appetite and has continued to put pressure on the Euro against the majors this morning. The Greek Parliament is expected to deliver its decision on the government’s newly unveiled €13.5 billion austerity package through a vote tomorrow. Although uncertainty looms over the Greek Parliament’s verdict, the EU Economic Commissioner, Olli Rehn, indicated that creditors and Greece are on track to reach a deal to release emergency lending to Greece at a meeting of the Eurozone finance ministers slated next week. Moreover, the IMF urged France to take urgent measures to stave off an economic deterioration, validating fears that core Eurozone nations face serious threats from the region’s debt crisis. Apart from the US Presidential election, markets are expected to track the Eurozone producer price inflation figures to gauge the prospect of an interest rate cut this week. The German factory orders data is also expected to provide insights into the health of core Eurozone nations.

Other Currencies – Highlights

The Aussie Dollar has strengthened against its major peers this morning after the Reserve Bank of Australia (RBA) unexpectedly kept its benchmark interest rate unchanged at 3.25% at its monetary policy meeting today. Additionally, data revealed that house price in Australia continued to climb for the third quarter, marking the first consecutive quarterly increase since 2010. Further perking up the risk appetite, data released yesterday revealed that Australia’s trade deficit narrowed, while retail sales rose more than forecast for September. Additionally, improving state of the Chinese economy also offered support to the Australian Dollar against the majors. With a light domestic economic calendar today, traders are expected to keep a watch on the Presidential election in the US for further direction. Meanwhile, the Australian employment data in the latter half of the week also holds significance for the future course of Australia’s monetary policy decisions.