The UK and the US astonished markets on Friday by posting better than expected third quarter growth numbers. While Britain seems to be on a steady path towards recovery during the final quarter of 2013 on the back of upbeat economic data lately, US economic growth is likely to stagnate during the same period following the October government shutdown which hit business sentiment in the world’s largest economy. Meanwhile, markets will take a breather in the midst of holidays this week, with important US economic releases likely to attract all market attention.
In the Euro zone, it remains to be seen if the improving sentiment lately results in upbeat growth numbers in the coming months.
Pound Sterling – UK Markets
The surprisingly upbeat revision to the third quarter domestic GDP failed to inspire the Pound against the majors on Friday, as Sterling continued to fluctuate against the greenback throughout the day and traded broadly lower against the Euro. The British economy expanded 1.9% annually during the third quarter, beating prior estimates, with a healthy rise in business investments contributing to the overall upbeat print. With recent economic data painting a pleasant picture of the UK economy, economic recovery is expected to continue on its upward trajectory during the final quarter of the year. Moreover, S&P ratings confirmed its “AAA” credit rating for Britain, citing the government's efforts towards reducing its budget deficit.
Meanwhile, Sterling has nudged higher against its counterparts in today’s trading session. With little on the domestic macro front during the forthcoming week, investors will keep a tab on macro releases from the US for further direction to the Pound-US Dollar pair in the coming sessions.
US Dollar – US Markets
Buoyed by upbeat consumer spending, the US economy expanded at the fastest annual pace since 2011 during the third quarter of 2013. The 4.1% growth print comfortably beat earlier estimates, highlighting that the US economic recovery was gaining traction before the prolonged government shutdown dampened sentiment in the world’s largest economy. However, despite the upbeat growth numbers, the greenback weakened against the majors on Friday amid profit booking. Meanwhile, Christine Lagarde, managing director of the IMF, stated that the US is poised to grow at a better than expected pace in 2014, citing a pickup in domestic economic activity, the Congress budget deal and clear communication from the Fed regarding QE3 trimming.
The greenback has continued to weaken against the majors this morning ahead of the revised Reuters/Michigan consumer sentiment print, which is expected to show a marginal uptick for December. Additionally, the domestic consumption expenditure report and the Chicago Fed national activity print are expected to gain market interest today. With little on the global economic calendar, crucial US economic releases will determine movement in the currency market during the week.
Euro – European Markets
The common currency traded broadly higher against both the US Dollar and the Pound on Friday on the back of the upbeat German and Euro zone consumer confidence reports. While the Euro zone consumer sentiment rose above expectations, the German confidence index advanced to the highest level since August 2007, indicating that the nascent economic recovery in the currency bloc is beginning to positively affect household sentiment. Surprisingly, the S&P ratings downgrade of the EU’s creditworthiness on Friday had no impact on the Euro. However, the upbeat US and UK third quarter GDP numbers limited the Euro’s gains against the majors on Friday.
The single currency is trading in a tight range against the US Dollar in today’s trading session. Meanwhile, data just out has shown a decline in consumer sentiment in Italy, despite recent encouraging economic and political news flows. With little on the domestic economic calendar, the Euro-US Dollar will take direction from the US macro-economic releases in the sessions ahead, although activity in the currency markets is expected to be largely muted in the midst of holidays during the week.
Other Currencies – Highlights
The Canadian Dollar is trading in a tight range against the majors this morning ahead of the release of the monthly domestic GDP report later today, which is expected to show that the nation’s economy expanded at a sluggish pace for October. Friday’s weaker than expected domestic consumer price inflation and retail sales reports weighed on the Canadian Dollar against the majors. With recent economic indicators pointing towards a stagnating domestic economic recovery the BoC Governor, Stephen Poloz, indicated last week that the central bank is unlikely to raise interest rates in the near term. The central bank’s dovish stance, along with the Fed decision to taper QE3, weakened the Canadian Dollar to three–year lows against the US Dollar last week.
Meanwhile, with no domestic economic indicators on tap and the Canadian economy closely related to its southern neighbor, investors in the Canadian Dollar will closely follow important US economic data during the week for further direction to risk appetite.