Britain’s Forward March Continues

Though few eyebrows have been raised regarding the sustainability of the UK’s economic recovery following relatively downbeat economic data lately, yesterday’s services PMI and the just released industrial output data will undoubtedly silence naysayers for the time being. With the EC and the NIESR raising the UK’s growth forecast for 2014, all eyes will be on the BoE meeting tomorrow to ascertain its outlook going forward. Meanwhile, in the Euro zone, economic data continues to offer mixed signals despite the ECB President, Mario Draghi’s assertion that the region is recovering gradually. Across the Atlantic, tomorrow’s GDP report will offer cues to the direction of the nation’s growth trajectory before being interrupted by the government shutdown.

Pound Sterling – UK Markets

Riding on the back of buoyant services PMI numbers for October, the Pound strengthened against its peers and climbed above the 1.60 mark against the US Dollar yesterday. Activity in Britain’s dominant service sector expanded at the fastest pace in more than a decade, indicating a strong beginning to the final quarter of 2013 and overshadowing the slightly downbeat economic data lately. Adding to the optimism surrounding the economy, the European Commission and the NIESR have raised their growth forecasts for the UK for next year. The NIESR expects the strong housing market to drive the nation’s growth next year, while warning about the threat posed by dwindling disposable incomes. Against this backdrop, tomorrow’s BoE policy meeting will be eyed by investors for insights into the central bank’s take on the economy. Meanwhile, Sterling has strengthened further against the US Dollar in today’s trading session after data just out has shown a pickup in domestic industrial activity for September, recovering from the weakness seen in the earlier month. Investors in the Pound will tap global economic news flows in the session ahead for further direction.

US Dollar – US Markets

The US Dollar was trading on a stronger footing against the Euro yesterday, in the wake of a surprisingly upbeat October ISM non-manufacturing PMI report. The recent leading indicators point towards a reasonable uptick in the overall economy despite the partial government shutdown last month. Demand for the greenback also remained supported in the aftermath of dismal Euro zone economic data. However, investors remained confounded over QE tapering following mixed signals from US policymakers. The Richmond Fed President, Jeffrey Lacker, reaffirmed his call that the central bank must begin reducing the stimulus measures, while stating that gains from the central bank’s QE programme remain “uncertain”, while the San Francisco Fed President, John Williams, opined that lacklustre economic growth in the recent past has seemingly hurt confidence in the labour market recovery being sustained without the monetary stimulus. Meanwhile, the greenback is trading on a weaker footing against its counterparts this morning. With a light domestic macro calendar today, investors are already looking forward to tomorrow’s US third quarter GDP report and Friday’s employment report for further direction.

Euro – European Markets

Another set of disappointing economic data and the European Commission’s lowering of the Euro zone’s growth outlook weakened the common currency against the majors yesterday. Additionally, upbeat ISM services data in the US compounded losses in the single currency against the US Dollar. Following the dismal consumer price inflation report last week, yesterday’s weak producer price numbers further dented investor sentiment. Further adding to the region’s woes, the EC projected that the Euro zone's economy will shrink by 0.4% in 2013 before expanding by 1.1% in 2014, lower than its earlier forecast of a 1.2% growth. The commission also expects the region’s unemployment rate to be at the record high of 12.2% until 2015. However, Mario Draghi appeared optimistic about a gradual Euro zone economic recovery. Meanwhile, the single currency has moved higher against the greenback in today’s trading session ahead of the domestic retail sales and the German factory orders data later today. Earlier today, the services manufacturing PMIs across the Euro zone surprised investors on the upside ahead of the ECB’s monetary policy meeting tomorrow.

Other Currencies – Highlights

The New Zealand Dollar is trading on a stronger footing against its peers this morning following the release of better than expected domestic labour market data earlier in the day. Employment in New Zealand climbed the most in more than six years for the third quarter of 2013, while the unemployment rate also ticked down to 6.2%, in line with market expectations. The upbeat employment report has fuelled speculation of the RBNZ raising the record low interest rates next year. The Kiwi Dollar has remained supported against the greenback in the last few days amid signs of Chinese economic recovery. With little on the domestic economic calendar to trigger risk appetite, investors in the Kiwi Dollar will track news flows emanating from both sides of the Atlantic today. Looking ahead, important Chinese economic data over the weekend will prove crucial for the New Zealand Dollar against the majors in the near term.