Action Packed Week Draws to a Close

A week that began with surprisingly weak UK consumer price inflation numbers is set to end on a similar note following yesterday’s unexpectedly downbeat retail sales report. However, investors had much to cheer about in between as the BoE upgraded its UK growth forecasts while also bringing forward interest rate hike expectations, ably supported by the buoyant employment data. Meanwhile, Euro zone economic recovery seems to have hit a roadblock following yesterday’s disappointing third quarter growth numbers, justifying the ECB’s dovish policy stance. Things in the US, next week look promising with a string of important domestic economic events lined up that will give a clearer indication of the strength of the nation’s economy.

Pound Sterling – UK Markets

The unexpectedly weak domestic retail sales data for October dragged the Pound marginally lower against the US Dollar yesterday. While retail sales were partially hit by the mild October weather, affecting the sale of winter clothes, the downbeat numbers also reflected the strain on household budgets due to the below inflation rise in domestic wages. However, Sterling more than made up for its early losses, following dovish comments by the incoming Fed Governor, Janet Yellen, at the US Senate Banking Committee confirmation hearing. The Pound also strengthened against the Euro following a weak set of growth numbers from the Euro zone for the third quarter. Meanwhile, Sterling is trading in a tight range against the majors in today’s trading session. With little on the domestic economic calendar, investors will keep a tab on the macro releases from across the globe for further direction to risk appetite. Moving ahead, next week’s third quarter UK GDP data and the minutes of the last BoE policy meeting will have a bearing on Sterling’s movement against the majors going forward.

US Dollar – US Markets

The US Dollar searched for direction against the common currency yesterday as Janet Yellen’s continued support of the Fed’s ultra loose monetary policy and the weak jobless claims numbers countered weak Euro zone growth estimates. In her confirmation hearing of the US Senate Banking Committee, the incoming Governor highlighted that the central bank will do everything possible to promote a very strong recovery. However, in contrast to the incumbent chair’s views, Charles Plosser, President of the Philadelphia Fed, opined that the central bank must narrow its focus only on price stability instead of the current dual task to tackle unemployment too. After a rather lacklustre week in terms of domestic economic data, the US is set to release the industrial output report for October which is expected to show a modest growth. A positive surprise on this front cannot be ruled out, given October’s robust ISM manufacturing data. In the forthcoming week, investors will have their hands full in terms of US economic releases, most notably the FOMC minutes, retail sales, consumer price inflation and manufacturing PMI report, among others.

Euro – European Markets

The Euro traded lower against most of the majors early yesterday following lacklustre GDP data across the Euro zone, highlighting the fragile nature of the recovery in the region. However, the single currency recouped some of its losses against the greenback later in the day as dovish comments from Janet Yellen provided a boost to riskier assets. Meanwhile, the ECB monthly report reiterated that the Euro zone inflation is expected to remain at lower levels for an extended period. The single currency is trading range bound in today’s session ahead of the final reading of the Euro zone consumer price inflation for October which is expected to remain unchanged from its preliminary reading. Going forward, economic releases in the US later today are expected to drive the near term trend in the Euro. A hoard of economic releases next week will also be keenly awaited for further direction.

Other Currencies – Highlights

The Canadian Dollar closed almost unchanged yesterday after recovering from its early losses against the greenback following comments from Janet Yellen, indicating continuation of the central bank’s massive bond buying programme. Additionally, the Canadian Dollar remained supported after domestic economic data showed that the nation’s trade deficit narrowed more than expected for September on the back of improved exports. Meanwhile, the Bank of Canada’s quarterly review report has revealed that the central bank is unlikely to raise interest rates in the near term even if the economy recovers and inflation is close to its target level. With no major domestic economic data to trigger risk appetite, the Canadian Dollar has moved lower against the greenback this morning. Investors will take cues from news flows emanating from both sides of the Atlantic later today, especially the US industrial production report, for further direction. Moving forward, next week’s domestic consumer price inflation and retail sales reports will prove crucial for the Canadian Dollar against the majors.