Global Gloom Persists

Ongoing concerns over the health of the global economy, primarily due to a raft of weak corporate earnings across the world, have kept a tight lid on high yield currencies this morning. The situation in Europe remains volatile, with the German finance minister rejecting another debt restructure for Greece. This has shifted focus on to the Greece–Troika discussions later today. Meanwhile, the much awaited third quarter GDP data released on Friday reassured investors that the world’s largest economy is gaining traction. At home, optimism surrounding strong third quarter GDP numbers was tempered after the Deputy Governor of the BoE warned that the UK’s economic growth could weaken in the final quarter of 2012.

Pound Sterling – UK Markets

The Pound has started the week on a flat footing against the greenback, as risk appetite among investors took a hit following downbeat earnings from major corporate bellwethers across the globe. However, data just out indicating that both mortgage approvals and net consumer credit climbed for September, should help in taking some pressure off the Pound. Meanwhile, Sterling is trading in a tight range against the Euro this morning as weak fourth quarter GDP guidance by the BoE Deputy Governor offset worries surrounding Greece and Spain. Charles Bean, the BoE Deputy Governor, opined that the UK economy might not fare well in the fourth quarter of 2012. The manufacturing and construction PMIs due later this week are expected to show deterioration for October, further validating his pessimism. Data released earlier this morning was fairly mixed, with Lloyds business sentiment showing an improvement while Hometrack home prices revealed a decline for October. With little on the domestic economic calendar during today’s session, Sterling looks set to be influenced by overseas cues.

US Dollar – US Markets

Ongoing concerns over the global economy, owing to a flurry of downbeat corporate earnings across the globe, prompted traders to seek shelter in the US Dollar this morning. However, market participants breathed a sigh of relief on Friday after the keenly eyed US third quarter GDP data came in better than expected. The American economy clocked a 2% growth in the third quarter, on the back of higher spending by consumers and the Federal government, together with acceleration in home construction. However, investors would only be cautiously optimistic amid the persistent debt crisis in Europe and the looming “fiscal cliff” in the US. In today’s trading session, US personal income and spending data for September is likely to garner modest market attention, as much of the data seems to be already priced in the third quarter GDP reading. During the week, the all important non-farm payrolls data takes centre stage and should provide some evidence of an improving landscape in the US labour market. Additionally, the much awaited Presidential election in the US later next month is expected to be a close call, thereby keeping traders on their toes.

Euro – European Markets

The common currency is under pressure against the majors this morning as concerns surrounding Greece fail to recede. The German finance minister, Wolfgang Schaeuble, has rejected another debt restructure for Greece, raising questions over the next aid tranche from the Troika. To make matters worse, Greece’s finance minister stated that the nation’s lenders have refused to make any further concessions on changes to labour laws contested by a junior coalition partner, prolonging an impasse on a crucial austerity package. The situation in Spain has further clouded the outlook for the Eurozone economy. Data indicating that the unemployment rate in Spain hit a record high in the third quarter has made tomorrow’s GDP data in Spain all the more important. In today’s session, market participants are likely to keep an eye on German consumer prices. Additionally, a hectic bond issuance calendar awaits investors during the week with Italy, France and Germany featuring on the list. The outcome of these auctions has the potential to strongly direct market sentiment.

Other Currencies – Highlights

In today’s trading session, the Canadian Dollar has weakened against the US Dollar as demand for high yield currencies took a hit. Additionally, deadlock over further aid for Greece has continued to dampen market sentiment. Moreover, pressure on crude oil prices due to reduced usage by refineries, citing Hurricane Sandy warnings, also affected the performance of the Canadian Dollar. In the previous week, the Bank of Canada sounded a little dovish while maintaining its key interest unchanged at 1%. The imbalances in the household sector continue to bother the central bank, which was also reflected in a tepid retail sales reading for August. During the week ahead, the October jobs report in Canada poses the major event risk for the Canadian Dollar, with any positive surprises proving helpful for the domestic currency. Additionally, GDP data for August due later this week also has the potential to influence market sentiment.