UK Economy Weathers the Storm

The exuberance following the London Olympics appears to continue, with the British labour market showing signs of improvement after data revealed a fall in number of claimants for jobless benefits. Although the BoE’s latest minutes indicate that policymakers unanimously agreed for leaving policy measures untouched, a switch from the current stance remains on the cards as inflationary worries have abated with inflation hovering close to a three year low. Spain managed to dodge a bullet after Moody’s held Spain’s credit rating just one level above “Junk” territory and spurred risk appetite among investors. Additionally, reports indicate that Germany would be willing to support Spain seeking a precautionary credit line from Europe's rescue fund.

Pound Sterling – UK Markets

The minutes of the BoE’s latest policy meeting revealed that MPC members unanimously voted to keep monetary policy unchanged. The Pound has gained against the majors after an initial decline this morning, as data revealed an improvement in the domestic labour market. Data just out has indicated that number of people seeking unemployment benefit unexpectedly declined. However, Moody’s affirmation of Spain’s credit rating has limited gains for the Pound against the Euro. The chance of the BoE adopting additional easing in its next month’s monetary policy meeting received a boost following yesterday’s subdued inflation reading. Apart from overseas cues, markets are expected to pay attention to the BoE Deputy Governor, Paul Tucker’s comments later today for further insights into the future course of Britain’s monetary policy.

US Dollar – US Markets

The greenback retreated against the majors in yesterday’s trading session after the German investor confidence indicator posted its second consecutive monthly gain in October, confirming the change in risk sentiment after an unprecedented set of easing measures adopted by the major global central banks. Positive news flow from the Eurozone has continued to weaken the greenback steadily against its major peers this morning. Risk appetite in today’s session has received a boost after Moody's left Spain’s sovereign debt rating at investment grade. Although the US annual consumer price inflation accelerated for September, inflation looks in check, as the index stayed at the Fed’s target rate. Meanwhile, factory output rose modestly but was not enough to make up for a sharp decline recorded for August. Meanwhile, the battle between both the US Presidential candidates appears to be heating up following the completion of their second debate, setting stage for the final stage of campaigning ahead of the elections slated in November. With sentiment among home builders steadily improving, today’s housing starts figures will be watched for further clarity on the housing front.

Euro – European Markets

The Euro continued to nudge higher against the USD in today’s session and is trading above the 1.31 mark, as traders breathed a sigh of relief after Moody’s left Spain’s debt rating unchanged at “Baa3”. Moody’s indicated that the ECB’s willingness to offer support and the Spanish government’s fiscal and structural reforms has supported Spain to avoid a downgrade. Meanwhile, reports citing two German lawmakers indicated that Germany was open to Spain seeking a precautionary credit line from the Eurozone rescue fund. However, a senior German lawmaker countered the report by saying that the report was "over-interpreted". On the macro front, German investor confidence index jumped for the second straight month for October, reflecting the change in sentiment following a raft of monetary stimulus announced by the major central banks. The German government’s forecast of the nation’s economic growth later today holds significance to gauge the growth prospects for the Eurozone, while tomorrow’s EU leaders summit in Brussels is also expected to influence the currency markets.

Other Currencies – Highlights

The Canadian Dollar underperformed most of the high yield currencies this morning, as hopes of an interest rate hike continued to fade. The Bank of Canada Governor, Mark Carney, doused hopes of an immediate increase in interest rate by hinting that he may lower his outlook for the Canadian economy at the monetary policy meeting scheduled next week. Meanwhile, on the economic data front, factory sales in Canada grew at a faster pace than expected for August, on the back of strong performance in energy and automobiles sectors. Additionally, data revealed that foreigners bought Canadian securities for a second consecutive month for August, following positive response to debt issued by companies and government enterprises. During the week, market participants are likely to focus on the Canadian consumer price inflation data for cues on further monetary policy stance. Additionally, risk appetite is also expected to be determined by the flurry of Chinese economic data scheduled for release tomorrow.