U.S. Prepares for Budget Talks

With worries about the “fiscal cliff” in the US taking centre stage, the budget deficit reduction talks in the US scheduled to begin today is presumed to set the ball rolling for sealing a deal between the nation’s law makers for averting the crisis knocking the doors of the US economy. Meanwhile, brewing debt troubles in the Eurozone is plaguing growth, as data revealed that the region slipped back into recession for the first time in three years. In the UK, minutes of BoE latest meeting scheduled for release next week is expected shed light into views of the BoE’s policy makers and offer some insights into BoE’s future course of actions.

Pound Sterling – UK Markets

Further evidence of the UK economy losing steam came to the fore, as yesterday’s data revealed that retail sales declined for October, with rising inflation curbing consumer spending. The probability of the BoE abandoning QE as a monetary easing tool appears slim with the BoE’s latest warning about the impediment to the domestic economic recovery. However, the disappointing economic release had minimal impact on Sterling, with Sterling hovering in a tight range against the Euro and the US Dollar in yesterday’s session broadly influenced by important cues from both sides of the Atlantic. With no major domestic releases on offer for today’s session, all attention is expected to shift to minutes of BoE’s monetary policy meeting due next week for gauging the prospects of a fresh dose of QE for the British economy. Besides, the public sector borrowing data will also be watched, in the midst of impending review of UK’s credit rating by Moody’s early next year. Investors are expected to watch for development related to the “fiscal cliff” from the US during today’s session for further direction.

US Dollar – US Markets

In the midst of a lack of clarity over the stance that US law makers would adopt for dealing with “fiscal cliff” troubles, first insights are expected to emerge from congressional leaders’ budget and tax talks commencing today. The US Dollar garnered some strength ahead of the important meeting, as the US President, Barack Obama, expressed his willingness for raising income taxes on the wealthy, a move which could face opposition from the other end of the political arena. With price pressures in the global economy once again shoring up, the CPI in the US moved above the Fed’s target rate in October, escalating uncertainty about the monetary policy stance that the Fed would adopt early next year. Meanwhile, manufacturing activity in New York and Philadelphia contracted, hurt by havoc caused by Hurricane Sandy. Similarly, number of seekers of jobless benefits also rose sharply. Apart from developments from the political front, traders are also expected to keep an eye on today’s industrial production figures for gauging the economic health of the US economy in the fourth quarter.

Euro – European Markets

Persistent debt troubles in the Eurozone have taken their toll on the region’s economy, as data revealed that the Eurozone slipped into a recession in the third quarter. However, the Euro climbed against its peers in yesterday’s session, as the French economy narrowly escaped a recession, while the Italian third quarter GDP figures surpassed market estimates. With the row between Eurozone governments and the IMF delaying the release of next aid tranche for Greece, traders turned hopeful after the IMF Managing Director, Christine Lagarde, urged policy makers to forge a deal to put the Greek economy on a sustainable path of recovery. However, the Euro has declined against the US Dollar in today’s session, as traders turned cautious, ahead of meeting between the US policy makers to deal with the nation’s fiscal woes. Apart from developments from the US, key PMI releases from the Eurozone scheduled for next week are expected to remain key factors determining the near term trend of the Euro.

Other Currencies – Highlights

The Aussie Dollar underperformed most of the high yield currencies and is currently trading flat against the Japanese Yen and Sterling, amid heightened hopes of further interest rate cuts by the Reserve Bank of Australia. The Aussie remained weak, as the Australian central bank revealed that it increased sales of the domestic currency last month. Additionally, the IMF indicated that the RBA has sufficient room to cut interest rates further, if the economy warranted. The minutes of RBA’s latest meeting due for release next week is expected to offer some insights on the possibility of an interest rate cut in the central bank’s next monetary policy meeting. Meanwhile, with no domestic release on tap for today’s session, traders are expected to closely watch the negotiations between the US policy makers for some clarity over the measures they would take for preventing an economic crisis.