Roller Coaster Ride Ahead for U.K.

Dismal retail sales data in the UK, following yesterday’s decision by the BoE to slash next year’s growth forecast, has reinforced fears of weakness in the British economy. This together with the dovish comments from the BoE Governor yesterday has sparked speculation that the BoE may be forced to embrace further stimulus measures to battle economic weakness. Today’s Eurozone GDP data offered some relief, with the French economy escaping a recession, while German growth figures broadly matched estimates. Meanwhile, today’s CPI data from the US will be watched closely by traders for further direction to Fed policy action.

Pound Sterling – UK Markets

Retail sales figures released today continued to support signs that the UK may fail to match the growth posted in the previous quarter. The weak retail sales data followed yesterday’s dismal labour market report and has lent credence to Governor King’s dovish comments during his press conference yesterday. Sterling continued to hover close to yesterday’s lows, with traders speculating that the prevalent weakness in the UK economy could prompt the BoE to embrace additional stimulus measures in the near future. In the much anticipated Inflation report, the BoE slashed its growth forecast for next year to 1.2% from its previous forecast of 1.8%, dashing hopes of a sharper rebound in the British economy. Meanwhile, on the inflation front the central bank warned that inflation will remain above the 2% mark until mid-2014. Meanwhile, Moody’s indicated that it would review UK's “AAA” rating in early 2013. With no economic data on offer from the UK, traders are expected to keep an eye on crucial economic releases from both sides of the Atlantic for gauging the direction for Sterling.

US Dollar – US Markets

The US Dollar is trading in a tight range against the Euro, as traders await further cues after a mixed bag of economic data. The minutes of the Fed’s latest meeting indicated that the central bank’s policymakers were open to the idea of offering further stimulus when “operation twist” expires at the end of the year. However, weak retail sales figures from the US have watered down hopes of a strong revival in the US economy for the fourth quarter. Yesterday’s factory price inflation figures showed that raw material prices were contained, as the producer price index registered an unexpected monthly drop. Traders are expected to watch out for today’s CPI data, as recent economic data suggest that inflationary pressures appear to be resurfacing in the major global economies. Philadelphia and New York manufacturing surveys are likely to provide a clear picture of the impact of Hurricane Sandy on manufacturing activity, while jobless claims figures are expected to shed more light about the employment situation in the US ahead of the holiday season.

Euro – European Markets

Concerns surrounding the core Eurozone nations have temporarily abated, as data earlier today revealed that the French economy narrowly escaped slipping into a recession in the third quarter, while the German economy continued to outperform other nations in the region. However, both the Italian and Spanish economies remain mired in a recession. The Euro managed to hold well above the 1.27 mark against the US Dollar, with the latest set of GDP data from the Eurozone offering no negative surprises. Meanwhile, appetite for peripheral bonds continued to show signs of revival, as the Italian Treasury auctioned three-year notes at the lowest rate in more than two years. However, with elections in Catalonia nearing, the prevailing logjam between policymakers continues to pose a threat to the marginal shift in sentiment among market participants. Apart from the Eurozone GDP figures, a flurry of important economic data from the US will be watched closely for further direction to the currency markets.

Other Currencies – Highlights

The Japanese Yen declined against its major counterparts in today’s session, as worries about the nation’s political situation came to the fore after the Japanese Prime Minister, Yoshihiko Noda, indicated that he will call a snap election in December. With polls suggesting that the opposition party would take control, the head of Japan's main opposition party called for aggressive monetary easing by the Bank of Japan in order to revive economic growth. Among economic releases from Japan, data revealed that housing loans continued to grow at a steady pace for the third quarter, while condominium sales in Tokyo plunged for October. Meanwhile, risk appetite among traders increased, as data revealed that core Eurozone nations continued to show signs of growth, despite the region’s debt crisis. With no major economic releases scheduled for the week in Japan, traders are expected to stay focused on developments from the political arena for further cues.