Spain Continues to Play Spoilsport

With Spain remaining at odds over the rescue aid, market participants seem to have scaled back their bets on high yield currencies. They continue to weigh the prospects of the country seeking such a bailout from the EU policymakers’ at a meeting scheduled later this week. Meanwhile, the much awaited initial set of Chinese economic indicators have highlighted that the nation’s growth outlook may not be as weak as earlier perceived. At home, Rightmove revealed a sharp rebound in the UK house prices for October, highlighting the positive impact of the recent funding for lending scheme. In today’s session, retail sales data from the US is likely to influence risk appetite among investors.

Pound Sterling – UK Markets

The Pound has begun today’s trading session on a weak footing against the US Dollar. Traders remained cautious largely due to the lack of clarity over the stance that Spain might adopt in the future for seeking further aid. Meanwhile, Sterling has nudged marginally lower against the Euro. Calls for the UK government to abandon its austerity programme have grown louder. The IMF’s Deputy Managing Director, David Lipton, stating that the Chancellor must take bolder measures to ease the pain of recent spending cuts and rather focus on growth accelerating initiatives. On the QE front, he urged the BoE to aid recovery by buying assets other than sovereign bonds. Meanwhile, on a positive note, Rightmove revealed that house prices registered their biggest increase in eight months for October. With no major macro releases scheduled for release today, Sterling is expected to track overseas cues for further direction. Moreover, a raft of economic releases from the UK scheduled during the week is expected to determine the direction of Sterling against the majors.

US Dollar – US Markets

The US Dollar has edged higher against its major counterparts this morning, as uncertainty over Spain's bailout prospects continued to fuel safe haven buying among investors. Despite the strength in the US Dollar, positive Chinese economic data released over the weekend and early today, have strengthened hopes of a global economic recovery. The Chinese trade surplus widened on encouraging growth in exports. Additionally, the consumer price inflation slipped below the 2% mark, providing much needed room for the Chinese central bank to lower its interest rates. In the absence of major economic indicators globally today, retail sales data in the US promises to act as a key trend setter for the currency markets. Markets expect retail sales to grow at a steady pace for September with the outlook for the retail sector remaining positive. Furthermore data on Friday revealed that consumer sentiment in the US unexpectedly climbed to a multi-year high for October. Meanwhile, the New York Empire manufacturing index is expected to offer first insights over the influence of latest monetary easing measures undertaken by the Fed.

Euro – European Markets

Prevalent worries surrounding Spain’s fiscal woes have led the Euro to start the week on a weaker footing against the greenback this morning. The Spanish Economy Minister, Luis de Guindos, opined that he was “extremely comfortable” with Spain’s ability to refinance itself through the rest of 2012, watering down hopes of a bailout for Spain. Shifting focus to Greece, the nation’s Prime Minister, Antonis Samaras, indicated that his government expects to agree on a new austerity package with its lenders, paving way for the release of the next aid tranche. The EU policymakers’ meeting during the week is expected to offer some hints about the plans for dealing with fiscal issues surrounding Spain and Greece. With a light European economic calendar today, markets are expected to focus on the US retail sales data to gauge the market sentiment. Moreover, the German economic sentiment and the Eurozone consumer price inflation data scheduled for release tomorrow holds relevance in determining the near term trend of the Euro against the majors.

Other Currencies – Highlights

The Aussie Dollar is holding its ground well against the US Dollar this morning following positive cues from the Chinese economy. Data revealed that trade surplus in China unexpectedly widened for September, on the back of robust growth in exports. Moreover, China’s consumer price inflation eased, offering room to the Chinese central bank to lower its interest rates further. On the domestic front, home loans grew at a better than expected pace for August, while automobile sales accelerated for September. However, gains in the Australian Dollar were muted after the RBA Governor, Glenn Stevens, indicated that there is scope to further lower borrowing costs. Moreover, traders stayed cautious ahead of the minutes of the Reserve Bank of Australia’s (RBA) latest monetary policy meeting due tomorrow. Apart from the RBA minutes, traders are expected to monitor a raft of Chinese economic data slated for release later in the week.