Japan’s Repeat Prescription

The Bank of Japan (BoJ), in its relentless battle to combat deflationary pressures, induced its second round of monetary stimulus in two months today, hoping to revive the domestic economy. Unprecedented sets of measures by major central banks continues to entice traders, stoking a rally in high yield currencies. However, the debt saga in the Eurozone continues to plague the region’s growth, with latest figures showing that the Spanish economy is mired in a recession. With the forthcoming monetary policy meeting of the BoE, traders are expected to set their sights on today’s CBI reported sales survey to monitor the resilience of Britain’s retail sector.

Pound Sterling – UK Markets

Better-than-expected lending data from the UK, released yesterday, offered further evidence that the funding for lending scheme has boosted prospects for the British economy. Despite the positive development in the UK’s economic landscape, Sterling was under pressure against both the US Dollar and the Euro in yesterday’s session, on account of the uncertainty surrounding the BoE’s monetary policy meeting scheduled early next month. Dovish comments from the BoE Deputy Governor, Charles Bean, have boosted chances of QE in next month’s monetary policy meeting. However, the BoE’s next move continues to flummox market participants, as MPC members persist in sending mixed signals. BoE policymaker, Ben Broadbent, portrays his reluctance to vote for more QE while the central bank’s chief economist, Spencer Dale, maintains his cautious stance for adding more easing measures. In today’s trading session, Sterling has moved higher against the US Dollar on improved risk appetite, following further monetary easing by the Bank of Japan. Traders are expected to pay close attention to today’s CBI reported sales figures to gauge the health of the UK retail sector.

US Dollar – US Markets

The US Dollar slipped against its major peers in today’s session after the Bank of Japan induced a fresh round of stimulus. However, losses in the greenback were limited, as concerns surrounding the debt situation in the Eurozone continue to persist after data released earlier today confirmed that the Spanish economy remained mired in a recession. Meanwhile, Hurricane Sandy slammed into the Eastern areas of the US, hurting operations on Wall Street for a second day today. On the domestic front, regional manufacturing data indicated that the Dallas region joins Philadelphia in registering a recovery in manufacturing activity for October. Meanwhile, both personal income and spending in the US continued to climb for September, further validating the strength shown by the latest GDP data. Today traders are expected to keep an eye on S&P/Case-Shiller home price index for further hints about the state of the housing market.

Euro – European Markets

The Euro staged a decent recovery against the US Dollar in today’s session, as the BoJ’s decision to deliver a new round of monetary stimulus spurred risk appetite among market participants. However, Italy faces a fresh set of political concerns, as the former Italian Prime Minister, Silvio Berlusconi, threatened to withdraw support for Mario Monti's government, raising concern ahead of the Italian debt auctions today. The latest economic data revealed that the Spanish economy continued to contract, albeit at a slower than expected pace. Despite the elevated levels of unemployment and problems surrounding growth, Spain’s Prime Minister, Mariano Rajoy, insisted that the nation has no immediate need to ask for outside aid to deal with its debt woes. Meanwhile, the number of unemployed people in Germany climbed more than expected for October, highlighting the nation’s vulnerability to the debt crisis. Apart from the Eurozone’s business climate data due later today, traders are expected to keep an eye on the French President, Francois Hollande’s visit to Germany.

Other Currencies – Highlights

The Japanese Yen has climbed against its major peers in today’s trading session after the BoJ’s monetary policy meeting offered no negative surprises. In order to tackle deflationary pressures, the BoJ expanded its asset purchases by ¥11 trillion, marking the second increase in two months. Meanwhile, the central bank kept its key interest rate unchanged at current levels. In its monetary policy statement, the central bank indicated that it does not expect to meet its 1% inflation target in the period through March 2015, reaffirming that further monetary stimulus cannot be ruled out. The economic releases today also painted a dismal picture of the economy, with industrial production declining 4.1% for September, marking the steepest monthly fall since last year’s earthquake and tsunami in March. However, the unemployment rate, which held steady at 4.2% for September, offered some respite to market participants. Apart from developments from both sides of the Atlantic, markets are expected to closely follow the manufacturing PMI and housing starts figures from Japan for further direction.