Dissention in the Ranks

The BoE Governor has opined that central banks must remain flexible while pursuing inflation targets, while MPC member Martin Weale has a contrary view regarding such a policy. These incongruent perceptions of both policymakers have raised the importance of the BoE’s minutes due next week and have kept the chances of further QE in the next meeting finely balanced. Meanwhile, S&P cut Spain’s credit rating to just a level above the Junk category to reflect the significant risks to the nation’s economic growth and budgetary performance, ahead of a heavy refinancing requirement in late October. Today’s jobless claims data in the US is expected to offer insights into recovery following the Fed’s new easing programme.

Pound Sterling – UK Markets

In the absence of major cues both domestically and across the Atlantic, the Pound continued to hover in a tight range against the US Dollar this morning. However, the Pound nudged higher against the Euro after S&P lowered Spain’s credit rating by two notches. Meanwhile, in the build up to next month’s monetary policy meeting, the BoE Governor Mervyn King has once again stoked hopes of a fresh round of stimulus by indicating that central banks should be flexible with inflation targets, signalling that the BoE might adopt fresh easing measures despite the underlying threat of inflation staying above the BoE’s target rate for a prolonged period. However, a divide among policymakers is apparent, following MPC member Martin Weale’s comments that another round of QE may not be "compatible" with the BoE's inflation target. News flow from both sides of the Atlantic later during this session will likely set the direction of Sterling against the majors.

US Dollar – US Markets

The US Dollar has strengthened against the Euro in today’s trading session after S&P struck a severe blow by downgrading Spain’s credit rating by two notches, hinting that the nation’s fiscal woes are deepening. Reflecting the trend shown by the recent manufacturing and services PMIs, the Beige Book survey indicated that most of the districts showed modest growth. However, it also revealed that the employment situation was “little changed” since the last report. The Dallas Fed President, Richard Fisher, cautioned that policymakers’ failure to address growth issues could hamper the nation’s growth prospects. Following last week’s data revealing an unexpected fall in the unemployment rate, traders today would closely eye jobless claims figures to gauge the state of the labour market at the beginning of the third quarter using Alexa Rank Besides this, trade balance figures due later today will also hold significance.

Euro – European Markets

The Euro is trading well below the 1.29 mark against the US Dollar this morning after S&P lowered Spain’s credit rating to “BBB-” from “BBB+”, with a “negative” outlook, as it expects rising unemployment rates and harsh austerity measures to intensify social unrest and cause further divide between Spain's central and regional governments. Against this backdrop, today’s Italian bond auction should remain the key highlight, as borrowing costs climbed at an auction of short term bonds yesterday. Data today revealed that inflation indicators in Germany and France have remained broadly unchanged, as price pressure remains subdued on weak economic prospects. Following the IMF’s move to slash global growth forecasts, the IMF Chief Christine Lagarde called for courageous actions by European and US policymakers to address problems in the job market. Meanwhile, focus is also expected to shift to the G7 meeting today, which is likely to address Eurozone debt problems, US fiscal problems and a slowdown in China and other emerging nations.

Other Currencies – Highlights

The Aussie Dollar has advanced against its peers in today’s trading session after data revealed the Australian economy added more than 14,000 jobs for September, marking a sharp improvement following weak figures reported in August. However, the unemployment rate climbed more than expected to 5.4% for September from 5.1% recorded in the prior month. Additionally, data indicated that inflation expectations among Australian consumers increased slightly to 2.6% for October, posing a hurdle to the Reserve Bank of Australia to pursue further easing measures in the near future. Data earlier in the week had revealed that consumer confidence in Australia climbed for October. With no major events scheduled during the week, traders are expected to position themselves for the Chinese inflation, third quarter GDP and industrial output data due over the coming week. Economic releases from the US and the outcome of the G7 meeting are expected to influence risk appetite in today’s session.