QE Hopes Fade

The minutes of BoE’s last monetary policy meeting revealed that only one policy maker in the MPC believed that further QE may be warranted, as fears of rising inflation could have played on the minds of other members. Meanwhile, UK’s public sector borrowings slowed for October. High yield currencies nudged lower in today’s session, as the Troika officials failed to break the gridlock in yesterday’s meeting, further clouding the prospects for the Greek economy. Meanwhile, the Fed Chairman reiterated that fiscal cliff poses a 'substantial threat' and failure to address it could badly harm the economy.

Pound Sterling – UK Markets

Sterling recouped most of its losses against the US Dollar, as minutes of BoE’s latest monetary policy meeting revealed that only one MPC member of the central bank backed the call for additional monetary stimulus. Meanwhile, data revealed that public sector borrowing grew at a slower pace for October. However, the Pound nudged higher against the Euro, as persistent logjam between the Troika officials continued to delay the release of the aid tranche to Greece. Although traders continue to fear the possibility of BoE delivering a fresh dose of stimulus, simmering inflation worries could prevent the central bank from pursuing further asset purchases. BoE’s policy maker Martin Weale echoed similar views when he stated that more monetary stimulus may add to economic pressure at a time when UK’s inflation exceeds the central bank’s target. In the absence of any further major domestic cues for today, traders are expected to seek cues from developments from either side of the Atlantic for further direction.

US Dollar – US Markets

The US Dollar advanced against its peers, as the Troika officials failed to sketch out an agreement on the release of the next tranche of loans to Greece. Moreover, global growth worries resurfaced, as Japan recorded a higher than forecast trade deficit for October, on account of a continued fall in its exports. The housing sector continued to assist economic growth, as data revealed that housing starts in the US rose to the highest rate in more than four years for October. Meanwhile, the Fed Chairman, Ben Bernanke, once again urged the US policy makers to tackle issue related to fiscal cliff, though he remained tight lipped over the plans to extend the “operation twist” programme. Among economic indicators, consumer confidence data is expected offer insights into the consumer morale for November, while markets expect a drop in jobless claims following the sharp jump in the previous week. Apart from important economic data from today’s session, traders are expected to set their sights on tomorrow’s manufacturing PMI data from China for further insights into global growth.

Euro – European Markets

The Greek saga showed no signs of ending, as the Troika officials failed to break their deadlock in yesterday’s meeting, further delaying the release of aid package to the debt-ridden country. The release of the aid tranche remains evasive, as policy makers continued to disagree over measures required to lower the nation’s debt. In the midst of persistent worries about Greece, the Euro fell below the 1.28 mark against the US Dollar. Meanwhile, Moody’s downgrade of the French top credit rating appears to be taking its toll on the Eurozone’s financial system, as sale of the three-year EFSF bonds were delayed on account of the downgrade. However, the French Finance Minister, Pierre Moscovici, argued that the French economy was sound and that reforms were on track. Despite the concerns surrounding the Catalonia elections at the weekend, Spain cruised through a short-term debt auction yesterday. With no major data scheduled for release today, market participants are expected to keep a watch on tomorrow’s PMI readings from major Eurozone nations for further cues on the domestic front.

Other Currencies – Highlights

The Aussie Dollar declined against its peers in today’s session, as traders tread cautiously after the policy makers in the Eurozone failed to strike a deal for releasing the next aid tranche for Greece, thereby dampening market risk appetite. On the data front, the leading index in Australia continued to climb at a steady pace. With lack of cues from the domestic front during this week’s session, market participants will keep a watch on developments in overseas economies for further direction for the currency markets. Data today revealed that Japanese trade deficit was wider than forecast, heightening worries about global growth. Tomorrow’s PMI data from China is expected to shed more light on this front and provide further direction for the Aussie Dollar.