Markets Take a Breather

In an action-packed last week, the US economy pleasantly surprised markets by posting upbeat GDP and labour market data. With little on the economic calendar today, markets will look forward to comments from key US policymakers this week to ascertain whether the Fed is close to tapering its stimulus programme. With signs of weakness in the Euro zone prompting the ECB to slash its benchmark interest rate, investors will also follow a raft of Euro zone macro data, including third quarter GDP numbers, for further insights into the state of the region’s economic recovery. At home, with the BoE sticking to its policy stance, the central bank’s quarterly inflation report this week will be closely scrutinised for its take on improving domestic economic conditions.

Pound Sterling – UK Markets

Sterling slipped below the 1.60 mark against the US Dollar on Friday following the release of a largely buoyant US employment report. The downward slide in the Pound against the majors had begun earlier in the day after the release of weaker than expected UK economic data. While the trade deficit widened on the back of rising imports and declining exports, UK’s construction output print also came in weaker than expected, thereby hurting overall investor sentiment. With little on the global economic calendar today, the Pound is trading in a tight range against the majors this morning. Against the backdrop of the recent mixed economic data, Sterling investors are looking forward to this week’s BoE quarterly inflation report for gauging the central bank’s outlook towards the economy. Moreover, domestic employment, consumer price inflation and retail sales data will also garner market interest. Additionally, a slew of global macro events will keep investors busy throughout this week.

US Dollar – US Markets

The delayed but unexpectedly strong October US labour market report supported the US Dollar against the majors on Friday. The all-important US non-farm payrolls report showed robust growth in hiring for October, despite the prolonged government shutdown. However, the unemployment rate ticked up slightly to 7.3%. Consumer consumption and expenditure dipped marginally for September, whereas the Reuters/Michigan consumer sentiment index deteriorated to the lowest level in two years for November, pointing towards a phase of weak consumer spending going forward. Despite the positive employment numbers, Ben Bernanke, the Fed Chairman, maintained that there is wide scope for the US unemployment rate to fall further, thereby hinting at a continued period of monetary easing. Meanwhile, the greenback is searching for direction against the majors in today’s trading session. With no US economic data scheduled today and a relatively light economic calendar for the week ahead, market participants will track the industrial production report and regional manufacturing indices in the US for further direction to risk appetite. Also, speeches from some key US policymakers during this week will gain market attention for hints on the timing of QE3 tapering.

Euro – European Markets

Deteriorating domestic economic conditions, coupled with the US economy showing signs of strength, saw the Euro briefly moving close to the 1.33 mark against the greenback on Friday. With the US labour market report showing little adverse effect of the government shutdown, the demand for high yield currencies remained subdued on Friday. Meanwhile, with Greece locked in talks with its creditors to seek additional debt relief, the Greek government survived a no confidence vote in Parliament over the weekend. The single currency has limited its downside against the majors this morning after data released earlier today showed a less than expected annual decline in Italy’s industrial output for September. Investors will keep a tab on a string of important domestic economic releases due this week, including the German and Euro zone consumer price inflation and third quarter GDP data, to ascertain the strength in the region’s economy.

Other Currencies – Highlights

The Japanese Yen has limited its upside against the majors this morning following a report which pointed towards weak current economic conditions in the nation. Additionally, trade data released earlier today showed that the nation’s trade deficit narrowed less than expected for September. However, the nation’s current account surplus widened to the most in five months for September. The unexpected rise in the current account surplus can be largely attributed to the weaker currency boosting the value of overseas investment income. With a relatively light global economic calendar today, investors are looking forward to tomorrow’s domestic consumer confidence data and the third quarter GDP and industrial production data later this week for further direction to risk appetite. Additionally, important economic news flows emanating from both sides of the Atlantic during the week will prove crucial for the Yen against the majors.