UK Gathers Momentum

The rebound in retail sales figures for September highlights that the British economy switched gears in the latter half of the third quarter on the back of a recovery in the labour market. With the central bank’s minutes released yesterday not providing much clarity over the BoE’s coming moves, next week’s GDP data looks set to dominate near-term market dynamics. Although data released earlier today revealed a slowdown in Chinese economic growth, strong Chinese industrial production and retail sales numbers have rekindled hopes that the economic landscape in China is improving. Markets will anxiously be awaiting cues related to Spain and Greece from the European finance ministers meeting commencing today.

Pound Sterling – UK Markets

Sterling climbed against the US Dollar in yesterday’s trading session following an upbeat labour market report and the unemployment rate slipping below the 8% mark, the lowest level since June 2011. Meanwhile, the possibility of a fresh dose of QE in the BoE’s next monetary policy meeting remains finely balanced, as minutes of the central bank’s last meeting indicated that MPC members were split over whether more economic stimulus would be required after the current programme expires this month. The Pound has moved higher against the major currencies in today’s trading session following upbeat retail sales data. Data just out has revealed that monthly retail sales in the UK rebounded for September, as the labour market in the UK continues to show promising signs of recovery. News flow from the two-day EU finance ministers meeting starting today promises to be a key driver for currency markets in the next few trading sessions. Traders are also expected to pay attention to US releases scheduled later today.

US Dollar – US Markets

With the much awaited third quarter Chinese economic growth data offering no surprises, the US Dollar continues to look for direction against the majors this morning. Along broadly expected lines, Chinese economic growth slowed for a seventh consecutive quarter, validating fears that the economy may be near to the end of an unsustainable age of rapid growth, although upbeat industrial production and retail sales figures did manage to pacify some concerns. The resilience shown by the US housing sector continued to reaffirm the widely held view that the US economy is gathering momentum. Housing starts jumped more than expected for September while building permits rose sharply, highlighting the spurt in home builder sentiment. Today’s jobless claims figures will be watched, as traders try to gauge if the preceding week’s fall was due to improving labour market situation or adjustments of seasonal variations at the start of the quarter. Meanwhile, the Philadelphia Fed’s manufacturing index is expected to make the first move into positive territory in five months for October.

Euro – European Markets

The Euro is trading marginally lower against the greenback in today’s session, as traders remained cautious ahead of the EU finance ministers two day meeting beginning today. Policymakers are expected to tackle deep differences over plans for a pan-European banking union, but no substantial decisions are expected. Meanwhile, the German economy showed signs of succumbing to pressure due to weakness in peripheral Eurozone economies, as the German government cut its economic growth forecast for the next year to 1% from an earlier forecast of 1.6% growth. With Moody’s offering a reprieve for Spain’s credit rating and with the nation’s 10 year bond yield hovering close to the 5.5% mark, traders expect Spain to clear today’s bond auction hurdle with ease. However, the outcome of regional elections in Spain holds the key for the nation. In the absence of any major economic releases in Europe, trading during this session is expected to be dominated by cues from the EU policymakers meeting and data from the across the Atlantic.

Other Currencies – Highlights

The Aussie Dollar nudged higher against the majors in today’s session, as economic releases from China improved market risk appetite. The Chinese third quarter economic growth matched market forecasts, brightening the export outlook for the Australian economy. Additionally, Chinese industrial production data was better than expected, while retail sales unexpectedly jumped for September. Meanwhile, data from the National Australia Bank revealed that Australian business confidence improved for the third quarter, although it hovered near to its lowest level in a year. With no domestic economic releases scheduled during the week, the Aussie Dollar is expected to stay focused on external cues for further direction. In today’s trading session, currency markets are expected to track news flow emanating from the EU summit and jobless claims and manufacturing data from the US.