US Retail Sales Boost QE3 Taper Prospects

The surprisingly buoyant US retail sales print complimented last week’s upbeat consumer sentiment, labour market reports and the budget deal struck earlier this week, fuelling speculation that the Fed may after all begin scaling back QE3 this year. A positive domestic inflation report, just ahead of the FOMC meeting next week, will only add to the clamour for a Fed taper. Meanwhile, the Euro zone economic data continues to offer little support to the upbeat market sentiment lately, with a loose monetary policy stance expected to be given a long rope by the ECB. At home, a slew of important economic events, including the BoE policy meeting, will gain market attention next week.

Pound Sterling – UK Markets

In the absence of major domestic macro economic data yesterday, the Pound retreated versus the US Dollar as buoyant retail sales in the US added to chatter that the US Federal Reserve will begin tapering its monthly bond buying programme sooner than envisaged. Meanwhile, the CB leading economic index rose for October, albeit at a slower pace. With little in store in terms of macro releases today, Sterling is trading in a tight range against the majors in today’s trading session. The US QE chatter continues to influence trading in the Pound-US Dollar pair, despite the BoE becoming increasingly hawkish recently compared to its US counterpart. With the week coming to an end, key economic releases next week will be crucial to determine the near term dynamics in the Pound. A flurry of events in the US and rest of Europe due in the week ahead will also be influential for the Pound going further.

US Dollar – US Markets

Contrary to market expectations, US retail sales for November advanced the most since June this year, reflecting a pickup in consumer sentiment at the beginning of the holiday shopping season and boosting the US Dollar against the majors yesterday. The upbeat retail sales numbers have raised speculation that the Fed will taper its QE measures in its meeting next week. However, the upside in the greenback was capped after a separate report showed a substantial rise in the number of people claiming first-time unemployment benefits during the last week after dropping to a near six-year low earlier in the week. Meanwhile, the House of Representatives passed legislation for the budget deal paving the way for a vote in the Senate, expected during next week. The greenback is trading under pressure against the Euro this morning following the release of surprisingly positive Spanish consumer price inflation report for November. Today’s domestic producer price report is unlikely to gain much market attention, with investors’ focus firmly fixed on next week’s Fed policy meeting along with a slew of other important macro releases.

Euro – European Markets

Doveish comments made by the ECB President, Mario Draghi and a similar stance on monetary policy and inflation offered by the central bank’s monthly report halted the common currency’s recent winning streak against the US Dollar yesterday. Additionally, the sharp and unexpected fall in the Euro zone industrial production for October added to apprehension about the sustainability of the currency bloc’s economic recovery. Furthermore, relatively upbeat US economic data weighed on the single currency against the greenback yesterday. Meanwhile, the unexpectedly positive consumer price inflation numbers from Spain has marginally lifted the Euro against the greenback in today’s trading session, ahead of the Euro zone labour market report later in the day. Additionally, speeches by the ECB vice-President Vitor Constancio and executive board members Benoit Coeure and Peter Praet today will be closely scrutinised by investors for further direction on policy and growth. Moving forward, investors have their plates full in terms of important domestic economic releases next week, which will give further insights about the strength and sustainability of the region’s economic recovery.

Other Currencies – Highlights

The Canadian Dollar fell against its US counterpart yesterday, amid growing speculation that the US central bank will pull the tapering trigger as early as next week. At home, citing concerns over deflation, Stephen Poloz, the Bank of Canada Governor, stated that the persistently low price levels coupled with the likelihood of a housing market collapse poses the biggest threat for the nation currently and that the key interest rate is likely to stay put for “quite some time”. Against this backdrop, the domestic inflation and retail sales prints due next week will be keenly eyed. Meanwhile, the Canadian Dollar is hovering at yesterday’s lows versus the greenback this morning amid a lack of economic triggers. A host of economic releases across both sides of the Atlantic will be watched for further movement in the Canadian Dollar.