BoE Gets Some Breathing Space

As markets await the monetary policy meeting next month, rumours suggest that the BoE would not be left behind in announcing fresh monetary policy initiatives. Today’s consumer price index numbers also point towards such a move, as UK inflation inched closer to the central bank’s target, offering scope for another round of asset purchases. With the regional elections in Spain approaching, the nation is expected to defer any request for fresh aid. Meanwhile, the forward looking confidence indices in the Eurozone and Germany later today hold interest. In the US, yesterday’s upbeat retail sales figures have shifted focus to industrial production and inflation data due later today.

Pound Sterling – UK Markets

The Pound is trading lower against the Euro in today’s trading session after data just out indicated that inflation in the UK eased for September, offering room for the BoE to inject a new round of stimulus measures at its monetary policy meeting scheduled next month. It has moved higher against the US Dollar on risk appetite. Data revealed that consumer price inflation in the UK moved closer to the central bank’s target rate of 2% for September, primarily due to the base effects from a sharp rise in utility tariffs a year ago. However, the recently announced hikes by major energy firms in the UK could prevent inflation from falling below the BoE’s target rate during the course of the year. Producer price figures suggested that annual input price pressures subsided, while output prices unexpectedly rose. On the housing front, data from the ONS revealed that annual house prices climbed at a slower pace for August. Apart from major economic releases from the US during today’s trading session, traders are also expected to eye the BoE minutes and Britain’s labour market data scheduled for release tomorrow.

US Dollar – US Markets

The US Dollar has begun today’s trading session on a weak note against the majors, as traders shunned the greenback on increased risk appetite. The upbeat US retail sales data released yesterday highlighted that the nation’s retail sector remained fairly insulated from external shocks, reflecting higher consumer confidence. The optimism was noticeable in the St. Louis Fed President’s comments, wherein he opined that US economic growth would be closer to 3.5% next year and would offer a boost to the nation’s labour market. On the manufacturing front, the New York Fed indicated that the region’s manufacturing activity improved less than expected for October, although it remained in contraction for the third consecutive month. Today’s industrial production figures are expected to offer insights into the strength of the manufacturing sector at the final phase of the third quarter and set the stage for next week’s GDP data. Additionally, the recent liquidity boost offered by the Fed has raised the significance of today’s consumer price inflation reading.

Euro – European Markets

The Euro has strengthened against its major peers in today’s trading session, amid hopes that Spain would seek assistance from its European counterparts in the near future. Although negotiations between Greece and its creditors regarding further aid are unlikely to complete by Thursday, the Greek Prime Minister assured that the nation would successfully conclude the talks as early as possible. Despite anaemic growth prospects, peripheral Eurozone nations continue to embrace fresh austerity measures in order to keep alive the prospects of seeking aid from their European counterparts. Portugal has fallen deeper into the austerity trap after the government announced sweeping tax rises and spending cuts in its 2013 budget, forcing the economy to be mired in a third year of recession. Back in Spain, S&P lowered its long term sovereign credit rating on eleven Spanish banks, highlighting the weakness in the banking sector. On the macro front, markets are expected to keep an eye on the Eurozone and German sentiment indices and the Eurozone inflation and trade balance figures for further direction to the Euro against the majors.

Other Currencies – Highlights

The New Zealand Dollar has declined against its major counterparts this morning after data revealed that consumer price inflation in New Zealand unexpectedly eased for the third quarter and slipped below the central bank’s target rate of 1%, boosting speculation of an interest rate cut. Traders fear the Reserve Bank of New Zealand (RBNZ) would follow its Australian counterpart in slashing interest rates on account of subdued inflationary pressures and prevalent global risks. The newly appointed RBNZ Governor, Graeme Wheeler, is poised to hold his first official cash rate review next week. With no major domestic releases scheduled for today, currency markets are expected to closely follow macro releases from the US and the Eurozone for further direction. Additionally, a flurry of economic data from China slated for release during the week is also expected to impact the Kiwi Dollar against the majors.