British Inflation Cools

With the latest UK inflation numbers moving closer to the BoE’s 2% inflation target, expectations of an earlier than expected rate hike have been boosted. Investors now await the assessment of the economy by the central bank in its quarterly inflation report tomorrow. Additionally, Mark Carney’s views on the improving economic conditions at home will be closely scrutinised by investors for gauging the BoE’s stance going forward. Across the Atlantic, with not much on the platter in terms of major economic releases, market participants will be glued to speeches by Fed policymakers today for further hints on the central bank’s future policy stance, in the wake of the recovering US labour market.

Pound Sterling – UK Markets

Speculation of the US Fed tapering its bond purchase programme following the upbeat jobs report has dragged the Pound lower in today’s trading session, though the losses were essentially confined to the US Dollar. Additionally, data just out has shown easing inflationary pressures in the UK for October, despite the rampant housing market. However, price pressures could again simmer once the latest round of energy price hikes comes into effect in the near future. Following today’s consumer price inflation print, the BoE quarterly inflation report and the labour market report scheduled for release tomorrow will be keenly awaited by investors and a positive outlook towards the British economy could bring forward expectations of an interest rate hike. Meanwhile, the overnight RICS housing survey report showed that house prices in the UK rose to an eleven year high for October, aided by the government’s measures to support the housing market. In a rather lacklustre trading session yesterday, Sterling carried over Friday’s weakness and slipped below the 1.60 mark against the greenback. With no macro data on tap, Friday’s US jobs report and speculation of QE3 tapering next month weighed on the minds of Sterling investors.

US Dollar – US Markets

Buoyant domestic labour market data on Friday has fuelled speculation of an earlier than expected scaling back of the US Fed’s bond buying programme, thereby lifting the greenback against its peers in today’s session. In this context, investors will keep a close tab on speeches by influential Fed policymakers today for further hints on the timing of QE3 tapering. On Friday the Fed President, Ben Bernanke, somewhat played down the possibility of QE3 tapering during his term as the Fed chief, which ends next month, by stating that there is wide scope for US unemployment to fall further. In the absence of major domestic economic triggers, the Chicago national activity index and the NFIB business optimism survey reports will generate modest market interest today.

Euro – European Markets

In the midst of a lacklustre trading session, the Euro staged a small comeback against the majors yesterday, after weakening sharply over the past few days. The Euro has experienced widespread selling in the last few trading sessions in the aftermath of the ECB slashing its key interest rate in response to weak economic data lately, especially the four-year low October inflation numbers. Meanwhile, acknowledging the progress made by Cyprus in implementing the EU-IMF bailout programme, Fitch Ratings has maintained its credit rating for the nation. However, the agency has also warned that the nation’s outlook remained bleak despite growth so far in 2013. Better jobs numbers from the US has led investors to turn to the US Dollar in today’s trading session, dragging the Euro lower. However, the common currency is trading higher against the rest of the majors. Data released earlier today revealed that the final reading of the German consumer price inflation held steady at a three-year low for October, vindicating the ECB’s rate cut decision last week. Later today, speeches by Fed policymakers will be keenly eyed by investors for further direction to the Euro-US Dollar pair.

Other Currencies – Highlights

The Australian Dollar failed to arrest its recent downward movement against its US counterpart and dropped to a five-week low this morning, following the release of disappointing domestic business sentiment for October which dropped the most since 2011, falling from September’s three-year high. The weakness in the Aussie Dollar can also be attributed to speculation of a restrained period of growth in China, Australia’s biggest trading partner, ahead of the four-day meet of top Chinese leaders to map the nation’s future growth path. Later today, investors will keep an eye on the overnight domestic consumer confidence report for further direction to risk appetite. Additionally, news flows emanating from both sides of the Atlantic will drive investor sentiment towards the Aussie Dollar in the session ahead.