New Green Shoots for the Greenback?

The US ISM manufacturing index offered a positive surprise yesterday, with the manufacturing sector successfully bucking the trend of a slowdown in major manufacturing centres. High yield currencies garnered strength after the Fed Chairman hinted that the central bank would continue with its asset purchases. Across Europe reports indicated that Spain is now ready to request aid, a much awaited shift from its earlier stance. At home, data just out has revealed that construction PMI improved for September, aiding the Pound to recover following yesterday’s disappointing manufacturing PMI and weaker mortgage lending data.

Pound Sterling – UK Markets

The Pound has climbed against the US Dollar today, as construction PMI data just out has offered some respite to investors following a weak set of economic data released yesterday. However, a recovery in the British housing sector remains elusive, as data from Nationwide indicated that house prices in the UK declined for September. Weak economic cues from Britain, coupled with the euphoria surrounding Spain’s positive banking stress results, weighed on Sterling against the Euro in yesterday’s trading session. Hopes of a further increase in the BoE asset purchase program remain, after the latest PMI reading indicated that Britain’s manufacturing activity shrank more than expected for September. Additionally, the introduction of the Funding for Lending Scheme last month seems to be having minimal impact on the housing market, as data from the BoE revealed that mortgage approvals were little changed for August. Markets are now expected to focus on the services PMI reading and the BoE monetary policy meeting during the next two sessions for further direction to Sterling against its major counterparts.

US Dollar – US Markets

The greenback slipped against its major peers in yesterday’s trading session after the Fed Chairman, Ben Bernanke, opined that the labour market remains the key point of contention for the Fed and it would continue with its bond buying programme, even if the US economy gains strength. Additionally the Chicago Fed President, Charles Evans, joined the chorus by stating that bond purchases were likely to last through 2013. The US Dollar has continued its slide against the majors this morning amid reports that Spain might soon place its demand for a bailout to its European counterparts. Meanwhile, after four consecutive months of contraction, the ISM manufacturing index in the US released yesterday unexpectedly expanded for September, casting off pessimism surrounding the growth prospects of the US economy. With the ISM New York business conditions index being the only major economic indicator due today, the ADP private payroll figures tomorrow hold market interest for hints on this week’s crucial non-farm payrolls data. Market sentiment in today’s session is likely to be guided by news flow emanating from the Eurozone.

Euro – European Markets

Report indicating that Spain is moving closer to seeking fresh aid from its European counterparts has led the Euro to hold ground against both the Pound and the US Dollar in today’s trading session. However, there are reports that Germany might oppose such a request. In the midst of a looming threat of a credit rating downgrade by Moody’s, the rating agency warned that Spanish banks might require almost twice as much capital as the official estimate. Meanwhile, Greece unveiled crucial austerity measures in its 2013 budget with an aim of securing much needed international aid. However, the Greek economy continues to reel under earlier imposed austerity measures, as the nation’s finance ministry indicated that Greece is headed for the sixth year of recession. Data released yesterday revealed that unemployment in the Eurozone reached a record high, as the region’s economies continued to reel under the pressure of prolonged economic weakness due to the debt crisis. Markets are expected to closely monitor developments in peripheral Eurozone nations to gauge risk appetite among traders.

Other Currencies – Highlights

The Aussie Dollar has declined this morning after the Reserve Bank of Australia unexpectedly cut its benchmark interest rate to 3.25% from 3.50%. The central bank’s statement accompanying today’s decision indicated that the threat of lower domestic economic growth prompted the central bank to lower its key cash rate. The RBA Governor also warned that weakness in Chinese economic growth and lower than expected resource investments pose threats to the Australian economy. Markets are now expected to shift their focus towards a raft of economic releases from Australia scheduled for release during this week. Additionally, news flow from the Eurozone and China could also prove pivotal in deciding the direction of the Australian Dollar against the majors.