Central Banks in Focus

The BoE’s monetary policy meeting today is likely to be a low key affair, as the central bank is expected to maintain the status quo until the current asset purchase program expires in November. Across Europe, the ECB policy meeting might not generate the euphoria witnessed during its last meeting. The central bank is expected to keep their powder dry, leaving benchmark interest rates`1 unaltered. However, Mario Draghi’s press briefing would be closely watched for the central bank’s stance in the midst of the rigid approach embraced by Spain. Meanwhile, the Fed’s minutes of the last policy meeting later today could contain the roadmap for the central bank’s easing programmes.

Pound Sterling – UK Markets

Yesterday, the Pound weakened against both the US Dollar and the Euro after the latest PMI reading indicated that growth in the British service sector slowed for September. Although the UK economy showed signs of emerging out of the recession, softer than expected PMI readings during the week continue to highlight its fragile state. Sterling has managed to climb from yesterday’s lows against the US Dollar this morning ahead of the BoE’s monetary policy meeting later today. The BoE is expected to keep its benchmark interest rate and asset purchase target unchanged at current levels. Although minutes of the previous BoE’s meeting indicated that some policymakers were open to the idea of further asset purchases, the visible change in sentiment following major central banks’ path breaking initiatives is expected to prevent the BoE from undertaking fresh policy measures in today’s meeting. Markets are expected to closely follow the ECB meeting and the Fed minutes of last monetary policy meeting for further direction on the risk appetite in today’s session.

US Dollar – US Markets

Higher risk appetite among market participants has led the US Dollar to weaken against its major peers in today’s session. Traders appear to have positioned themselves for major events slated during the course of today’s trading session including key European central bank monetary policy meetings. The minutes of the Federal Reserve’s last monetary policy meeting will also be closely monitored for hints about issues playing on minds of policymakers. With the Fed doing its part, attention is now expected to shift towards the fiscal front for monitoring the plan of policymakers for tackling problems related to the “fiscal cliff” in the US. With battle lines drawn following today’s Presidential debate, developments from the political arena promises to entice markets ahead of the next month’s elections. On the macro front, data from the service sector released yesterday offered a pleasant surprise, while the ADP payroll data revealed higher than expected job additions for September. In today’s trading session, apart from the FOMC minutes, weekly jobless claims and factory orders data are also on traders’ radar.

Euro – European Markets

The Euro bounced against the US Dollar this morning amid optimism among investors ahead of the ECB meeting slated later today. Markets expect the ECB to leave its benchmark interest rate unchanged at current levels. Spain is expected to cross the bond auction hurdle today with ease, as the latest austerity measures imposed by Spain are expected to win the confidence of market participants. However with the Spanish Prime Minister dragging his feet in seeking a full blown sovereign bailout, today’s press conference Mario Draghi would hold significance in monitoring the central bank’s stance. The much awaited retail sales data in the Eurozone surprised on the upside yesterday. With no macro data scheduled for release today, markets are expected to look forward to key events lined up during the session for further direction to the Euro against the majors.

Other Currencies – Highlights

The Aussie Dollar has declined against the Euro and Sterling in today’s trading session after data revealed that retail sales in Australia grew at a slower than expected pace for August. Although figures revealed a recovery in building approvals for August, it still remains sharply lower than August 2011 levels. Markets fear that weak economic releases have provided room to the Reserve Bank of Australia to lower its benchmark interest rate before the end of this year. With no data slated for the week, the Aussie Dollar is expected to track the events in the Eurozone and economic releases from the US for further direction.