UK Economic Woes Continue

With UK economic growth once again showing signs of slowing, there is growing belief that the BoE may be forced to continue with its asset purchase programme in order to offer support to the British economy. Against this backdrop, this week’s minutes of the last BoE monetary policy meeting will be watched for insights into the views of central bank policymakers. With President Obama expressing confidence about averting the “fiscal cliff”, reports following the meeting between US policymakers indicated that there was agreement between both sides on most of the issues. Meanwhile, reports indicated that Greece may soon receive its aid, preventing the nation falling deeper into the crisis.

Pound Sterling – UK Markets

The Pound began the weekly session on a positive footing and breached the 1.59 mark against the US Dollar, as traders became optimistic that policymakers in the US would reach a deal in order to avert the “fiscal cliff”. Meanwhile, Sterling is trading flat against the Euro, as traders await the minutes of the BoE’s latest meeting, and public sector borrowing data, due for release this week. With the latest economic data from the UK offering no major evidence of the British economic recovery gathering momentum, there is growing chatter that the BoE may inject another dose of stimulus to support the domestic economy. Similar sentiment was echoed by BoE policymaker, David Miles, as he stated that the bank may have to administer a fresh round of QE. Data from Rightmove revealed a monthly decline in UK house prices for November. With no major domestic cues for today, traders are expected to keep an eye on economic data from the US and the Eurozone for further direction.

US Dollar – US Markets

Top lawmakers from both major US political parties hinted at the possibility of a budget compromise that involves spending cuts and additional revenue, although they offered little detail about their plans. Easing worries surrounding the fiscal situation in the US weakened the US Dollar against its peers in today’s session. Additionally, reports indicated that Eurozone policymakers are on the verge of agreeing a deal to release the next aid tranche for Greece. Data revealed that US industrial output unexpectedly fell for October, as Hurricane Sandy disrupted production. Meanwhile, the Atlanta Fed President, Dennis Lockhart, offered some clarity over the Fed’s future stance, as he stated that central bank policies will remain intact even if Congress averts sudden tax increases and extends spending cuts at the end of the year. Traders are expected to keep a close watch on today’s existing home sales data and NAHB’s housing market index for further insights into the state of the housing market in the US.

Euro – European Markets

The Euro nudged higher against its peers in today’s session, as cautious optimism prevailed ahead of the Eurozone finance ministers’ meeting tomorrow. Traders stayed hopeful that Eurozone policymakers would soon agree on a deal to refinance Greece. However, the IMF Chief, Christine Lagarde, urged Eurozone leaders to formulate a permanent solution to Greece's debts troubles, thereby avoiding prolonged uncertainty and further damage to the Greek economy. Additionally, risk sentiment also received a boost, after reports indicated that the outcome of the Budget talks in Washington was positive and there was consensus on most of the issues among the nation’s policymakers. Data today confirmed the continued contraction in Italian industrial orders for September. Meanwhile, Eurozone construction output is expected to offer some insight into the region’s economy. Apart from the Eurozone finance ministers’ meeting tomorrow, traders are expected to keep a close watch on a flurry of PMI data and German GDP figures due for release in the latter half of the week.

Other Currencies – Highlights

The New Zealand Dollar is trading flat against the Euro and Sterling on account of mixed economic data from the island nation. The New Zealand performance of services index rose sharply to a reading of 57.4 for October. However, producer price inflation figures showed that input and output prices both fell for the third quarter, offering room for the Reserve Bank of New Zealand to lower its benchmark interest rate further. With no major economic data slated for release during the week, traders are expected to keep an eye on events overseas for further direction to the Kiwi Dollar. The Kiwi nudged higher against the US Dollar, as concerns surrounding the fiscal cliff in the US eased. Meanwhile, the outcome of the European finance ministers’ meeting in tomorrow’s session is expected to provide further direction to market risk appetite.