US Budget Deal Agreed

With a two-year budget deal agreed upon by negotiators, the US has staved off the risk of a government shutdown and eliminated the possibility of another game of political brinkmanship, subject to approval by the House and the Senate. Investors’ attention has now firmly shifted to next week’s FOMC policy meeting to gauge the central bank’s response to the current upbeat economic environment. At home, economic data continues to support recent buoyant growth projections, with a broad based economic recovery on the cards during the coming period. In the Euro zone, recent optimism in markets continues to defy concrete economic data, which suggests that headwinds to a sustained recovery persist and that the currency bloc’s economic woes are far from over.

Pound Sterling – UK Markets

The Pound searched for direction against the greenback yesterday, even as a flurry of positive domestic macro data affirmed Britain’s steady economic recovery. Industrial and manufacturing output picked up and the trade deficit narrowed for October, while house prices continue to move higher amid mounting demand and a shortfall in supply. Moreover, the upbeat NIESR GDP estimate report also indicated that economic recovery in the UK is continuing at a steady pace. In this context, a speech by noted hawk and MPC member, Martin Weale, will be closely scrutinised by investors today in order to gauge if the policymaker’s views are in line with that of the BoE. Meanwhile, sterling is trading lower, albeit in a tight range, against the US Dollar in today’s trading session. With the US Senate and House negotiators agreeing to a budget deal, thereby ending the fiscal impasse, sterling is likely to face downside pressures against the greenback in the days ahead. With no domestic economic data on tap, sterling investors will track global cues for further direction today.

US Dollar – US Markets

The US has moved closer towards avoiding another ugly budget showdown next month after a deal was reached overnight between the Senate Budget Committee Chairman, Patty Murray and the House Budget Committee Chairman, Paul Ryan, wherein automatic spending cuts in defense and domestic priorities will be rolled back and offset by substantial savings and reforms. However, the pact is subject to approval by the Senate and the House. Against this backdrop Treasury Secretary, Jacob Lew’s speech today will be eyed by investors for further insights. The budget deal is an addition to recent positive news flows from the US and may prove positive for the greenback in the near term. However, the US Dollar had a muted response to these developments yesterday with the greenback trading broadly lower against its peers, despite an NFIB report showing an improvement in sentiment among small businesses. Meanwhile, the greenback is trading nearly unchanged from yesterday’s close against the majors this morning. With a relatively light domestic economic calendar today, investors are already looking ahead to tomorrow’s retail sales numbers for November, especially in the wake of disappointing domestic “Black Friday” sales.

Euro – European Markets

The common currency has nudged lower against the US Dollar in today’s trading session after the German consumer price inflation data for November failed to offer any upside surprises to investors. The latest German data continues to add to the mixed bag of recent releases from the Euro zone’s largest economy, holding back the currency bloc’s economic recovery. Meanwhile, Mario Draghi yesterday, dismissed concerns about low inflationary pressures in the Euro zone. On a different note, the ECB President also opined that the national governments in the EU must bring-in key economic reforms and complete a banking union. The single currency continued its recent upward trend against the US Dollar yesterday, largely supported by a broad US Dollar weakening, despite the Democrats and Republicans in the US Congress reaching an agreement on the budget. With no major economic data to trigger risk appetite, the recent upward trend in the Euro-US Dollar is expected to persist in the session ahead. Meanwhile, tomorrow’s ECB monthly report and the Euro zone industrial production print will be eyed by investors for further cues to the region’s economic progress.

Other Currencies – Highlights

In the run up to the overnight monetary policy meeting of the Reserve Bank of New Zealand, the Kiwi Dollar has weakened against the majors this morning. Although recent positive economic data has given room to the RBNZ to raise interest rates, the central bank is expected to push the decision to sometime next year, while maintaining the status quo on policy in its final meeting of the year. Furthermore, the New Zealand Dollar has also come under pressure against its peers lately, largely responding to mixed macro-economic data emanating from China, New Zealand’s major trade partner. With little on the global and domestic macro front, investors in the Kiwi Dollar will look ahead to any forward looking statement by the RBNZ in the session ahead. Additionally, tomorrow’s domestic manufacturing PMI numbers will be closely eyed by market participants for further direction to the Kiwi Dollar against the majors.