UK’s Great Escape

The NIESR, in its growth estimates for the UK economy, indicated that the British economy has escaped a recession by registering a sharp recovery in the third quarter. In contrast to the buoyancy highlighted by the agency, economic data released yesterday revealed that the British economy continues to grapple with its manufacturing woes and registered a wider trade deficit on account of weakness in offshore economies. Yesterday’s session witnessed the ECB President and the German Chancellor voicing their support for Greece’s reform measures, hinting at an imminent release of the next aid tranche. The Fed’s Beige book today survey would garner market attention for hints on the general economic conditions in the major Fed districts.

Pound Sterling – UK Markets

With risk aversion setting in among market participants, the Pound is range bound against the US Dollar in today’s session. However, Sterling has maintained its gains against the Euro on account of persistent concerns surrounding the Eurozone economy. The Pound showed resilience against the Euro yesterday, as worries surrounding the British economy continued to fade. The NIESR indicated that the British economy pulled out of its double-dip recession by recording the fastest pace of growth in five years for the September quarter. However, the same was less apparent in yesterday’s economic data which indicated that industrial output in the UK declined, while te trade deficit widened more than expected on account of the prevalent weakness in the European economies. Prime Minister, David Cameron, joined the Chancellor in reaffirming that the government would not soften its austerity programme, defying the recent recommendation made by the IMF. With little in store on the economic front today, traders are likely to set their sights on events in the Eurozone and the US for further direction.

US Dollar – US Markets

The US Dollar continued its upswing against the Euro in today’s trading session, as investors continued to fret about the Eurozone debt crisis. Further weighing on market sentiment is yesterday’s series of downgrades by the IMF for major global economies. Despite recent signs of improvement in US economic indicators, the broader economy remains susceptible to outside shocks, as data released yesterday revealed that a measure of small business sentiment unexpectedly weakened for September. However, economic outlook appears to have changed considerably ahead of next month’s elections, as the economic optimism index unexpectedly rose for October. Meanwhile, the Fed’s Vice Chairman, Janet Yellen, indicated that the central bank’s asset purchases that boost US economic growth would actually have global benefits. Today’s Beige book survey and policymakers’ statements later today are expected to shed more light about the impact of the central bank’s asset purchase plan.

Euro – European Markets

The Euro has managed to limit its losses against the US Dollar in today’s trading session after data indicated that the French and Italian monthly industrial production unexpectedly climbed for August, sharply in contrast to the recent weakness highlighted by the respective manufacturing PMIs. Meanwhile, concerns surrounding Greece have abated slightly after the German Chancellor, Angela Merkel, showed appreciation for the Greek government for making progress on the reforms front. The positive comment from the German Chancellor has validated market belief of an approval for the next tranche of aid. In today’s trading session, the meeting between the French President and the Spanish Prime Minister would be closely watched for hints on the possibility of a Spanish bailout. Today’s bond auctions in Italy and news flow from the US are also expected to offer some direction to the Euro.

Other Currencies – Highlights

The Swiss Franc has climbed against the Euro in today’s session after the Swiss National Bank (SNB) Chairman, Thomas Jordan, stated that the central bank would hold the cap on the Francs-Euro exchange rate at 1.20 for now, easing worries that the SNB would revise the existing floor price to tackle the deflationary pressure in the economy. Data released earlier during the week had indicated that deflationary trend in the Swiss economy continued for September. Meanwhile, prevalent concerns surrounding the Eurozone economy weakened the Swiss Franc against the other major peers in today’s session. Yesterday, the Swiss Franc was under pressure against the majors after two custody banks indicated that they would begin charging depositors for holding Swiss Francs. With no major economic releases scheduled during the week, the Swiss Franc is expected to track events in the Eurozone to gauge the risk appetite among traders.