Euro Struggling Again

Although peripheral Euro zone economies show signs of recovering from the recession, concerns over the state of the region’s economy prevail following weak sets of economic releases in the recent past. With the currency bloc facing fresh headwinds, it remains to be seen whether the ECB resorts to some form of easing measures in its policy meeting next week, to support the economy. At home, despite the weak manufacturing and consumer confidence numbers lately, expectations of strong growth in the final quarter of 2013 remain firm. Across the Atlantic, following the Fed’s wait and watch approach towards QE tapering, important macro releases in the days ahead will prove crucial for the world’s largest economy.

Pound Sterling – UK Markets

Sterling traded range bound against the greenback yesterday following a mixed bag of US economic releases. However, the Pound surged ahead against the single currency yesterday, following a fall in annual consumer inflation and the release of a barrage of dismal macro economic data from the Euro zone. Meanwhile, BoE policymaker Martin Weale has opined that the central bank is keeping a close watch on inflation trends in the country. The BoE’s Inflation Report scheduled for release in the first half of this month will offer clarity regarding the central bank’s views on price pressures in the economy. Sterling has moved lower against the US Dollar this morning after data just out revealed that manufacturing activity in the UK weakened for October. With leading indicators from the UK showing signs of fatigue, the services PMI scheduled for release next week will be closely scrutinised for a clearer picture surrounding the health of the British economy. A slew of domestic economic events, including the BoE policy meeting, will keep investors on their toes next week.

US Dollar – US Markets

Regardless of mixed economic data, the US Dollar traded on a stronger footing against its peers yesterday, especially the Euro, after the currency bloc reported a weak set of macro-economic indicators that has raised prospects of further monetary easing in the region. Although the number of people claiming unemployment benefits in the US eased for the third consecutive week, the marginally weaker than expected print dampened investor mood. However, later in the day, markets were pleasantly surprised by the Chicago manufacturing activity for October, which expanded at the fastest pace since March 2011. Meanwhile, the greenback is trading higher against most of its counterparts in today’s session ahead of the US manufacturing report later today. In the wake of yesterday’s upbeat Chicago PMI numbers, a positive surprise on this front cannot be ruled out, which will further support the US Dollar. In the forthcoming week, significant US economic data such as the third quarter GDP reading and non-farm payrolls data, amongst others, will give early insights into the impact that the recent government shutdown had on the world’s largest economy.

Euro – European Markets

Fresh speculation that the ECB will be constrained to introduce further accommodative policy to bolster growth in its meeting next week, following downbeat macro data across the region lately, dragged the common currency below the 1.36 mark against the US Dollar. While consumer price inflation in the Euro zone unexpectedly dropped to a near four-year low for October, unemployment in the region climbed to a record high for September. With the German economy also showing signs of slowing down, it remains to be seen what measures the ECB will resort to in order to stop the rot. The common currency has continued to weaken against the majors in today’s trading session amid a lack of domestic economic triggers. Later today, investors in the Euro-US Dollar pair will keep a tab on US manufacturing PMI numbers for further direction to risk appetite. Looking ahead, apart from the all important ECB meeting, a string of macro releases, including the Euro zone services PMIs and retail sales data, will be closely scrutinized to ascertain the health of the economy.

Other Currencies – Highlights

In the run up to the Swiss manufacturing PMI report for October, the Franc moved lower against the majors this morning and has remained under pressure on a weaker than expected manufacturing activity print. After climbing higher against its peers earlier in the week, following the release of upbeat consumer and business sentiment indices, the surprisingly dismal manufacturing numbers has dampened investor sentiment towards the Franc. With little on the domestic economic calendar to trigger risk appetite, market participants will keep a close tab on US manufacturing PMI scheduled later today for further direction. Moving forward, next week’s domestic consumer price inflation, retail sales and unemployment reports will give further insights into the overall strength of the nation’s economy. Additionally, news flows emanating from both sides of the Atlantic throughout next week will prove crucial for the Swiss Franc against the majors.