Recent projections have pegged the UK economic recovery to gain further momentum over the next two years and today’s Autumn Statement by the UK Chancellor, George Osborne, is expected to confirm this along with expectations of a fresh round of spending cuts. Additionally, today’s BoE meeting will be eyed for any forward looking statements on inflation and monetary policy.
Although, the recent uptick in inflation has taken some wind out of the deflation debate, the ECB’s economic assessment in its policy meeting today will hold prominence. This coupled with a barrage of macro releases from the US could see some interest today and will drive market sentiment in the session ahead.
Pound Sterling – UK Markets
The weak domestic services PMI print yesterday failed to take the sheen off the recent optimism in the UK with the Pound closing on a stronger footing against the US Dollar yesterday. Although services PMI slipped to the lowest level in five months, service sector activity continues to remain robust going into the Christmas season. With the recent UK manufacturing and construction PMIs also pointing towards strong economic growth, today’s Autumn forecast statement by Chancellor, George Osborne will gain market attention for insights into the government’s future growth plans for the nation.
Meanwhile, the Pound has moved lower against the majors in today’s trading session. Apart from the Chancellor’s Autumn statement, investors will also closely scrutinise the BoE policy meeting for cues about the central bank’s policy stance, especially in wake of the central bank’s recent measure to scale back its liquidity boosting scheme to curb a potential housing bubble. Fresh rounds of spending cuts are also on cards. Additionally, the ECB policy meeting as well as important macro releases from the US will prove crucial for the Pound against the majors in the near term.
US Dollar – US Markets
Profit booking by traders capped gains in the greenback against the majors yesterday after upbeat domestic employment and housing market report propelled the US Dollar higher earlier in the day. The ADP employment report yesterday showed that the US private sector added more jobs in November than estimated with last month’s figures also significantly revised upwards. Against this backdrop, markets will keenly look ahead to tomorrow’s non-farm payrolls report for further direction on the US labour market. The US services sector however slipped more than expected for November, highlighting the uneven nature of recovery in the US lately. Meanwhile, the latest Fed Beige Book report indicated that the US economy continues to grow at a “modest to moderate pace”. However, the government shutdown has dampened retailers’ outlook ahead of the holiday sales season.
The greenback is trading range bound against the majors this morning ahead of the revised domestic third quarter GDP and initial jobless claims numbers today. Additionally, personal consumption and spending numbers will be closely followed by investors to unearth the reasons for the recent weakness in the retail sector.
Euro – European Markets
Despite largely downbeat domestic economic reports, the Euro managed to hold on to its recent gains against the greenback yesterday. The services PMI prints painted a mixed picture, with France and Italy slipping back into contraction territory, while Germany, Spain and the Euro zone PMI numbers recording an uptick for November. Additionally, the unexpectedly dismal Euro zone retail sales report added to signals the economic recovery in the currency bloc is losing steam. Meanwhile, the revised third quarter Euro zone GDP numbers were in line with market expectations.
The common currency has nudged higher against the greenback this morning ahead of the ECB monetary policy meeting today. While the ECB surprised markets last month by slashing its benchmark interest rate to counter the sluggish inflation, the likelihood of such drastic move today is minimal, with inflation in the region picking up over the last month. The subsequent press conference by the ECB President, Mario Draghi will be keenly followed to ascertain the central bank’s economic outlook, especially inflation and policy stance going forward.
Other Currencies – Canada Highlights
The dovish BoC comments on inflation and upbeat US jobs report weakened the Canadian Dollar to a three year low against the greenback yesterday. Although the Bank of Canada kept its benchmark interest rate unchanged in its policy meeting yesterday, comments warning of greater downside risks to inflation dampened expectations of a rate hike in the near future. Additionally, upbeat US labour and housing market data dwarfed the positive Canadian trade numbers, which showed a rebound in the nation’s trade balance for October.
With Canada’s economy closely related to its southern neighbour, today’s revised third quarter US GDP report, along with a slew of important macro releases will drive the Canadian Dollar’s movement against the greenback today. Furthermore, the domestic housing market and the Ivey PMI reports today will prove crucial for the Canadian Dollar against the majors in the session ahead.
British Pound Suffers Losses Ahead of Tuesday's Critical Vote