UK Mortgage Approvals fall in October

With the BoE signaling its intent to keep policy rate at low levels beyond the 7% unemployment rate target, market focus is expected to shift back to economic growth. An unexpected easing in the BBA mortgage approvals backs the BoE’s stance of reassessing the nature of economic recovery. Against this backdrop, this week’s third quarter GDP numbers will be closely scrutinised to gauge the UK’s Chancellor’s stance in the run up to the Autumn Statement. In the Euro zone, Friday’s upbeat German sentiment indices data has somewhat lifted the gloom in the currency bloc and the week ahead will prove crucial in determining the region’s near term recovery prospects. Across the Atlantic, economic data released during the week will help in gauging the strength of recovery in the world’s largest economy.

Pound Sterling – UK Markets

Despite a light domestic economic calendar on Friday, the Pound climbed above the 1.62 mark against the US Dollar, but weakened against the Euro, following the release of upbeat German economic data. Meanwhile, the BoE’s chief economist, Spencer Dale, has warned that although the British economy is moving in the right direction, complete economic recovery will take a "number of years", while also indicating that interest rates will remain lower for a sustained period of time. In this context, the BoE Financial Stability report later this week will be closely scrutinised by market participants for insights into the central bank’s assessment of the nation’s financial sector. Meanwhile, Sterling is trading on a weaker footing against the majors this morning after data just out showed a slight drop in the UK mortgage approvals for October. Later this week, the UK third quarter GDP report and consumer confidence data will be eyed by investors and an upbeat print on both fronts will lift the Pound further against its peers in the days ahead. Additionally, Sterling investors will also track important global economic data for further direction.

US Dollar – US Markets

“Risk-on” sentiment largely prevailed in markets on Friday as traders shed the safe haven of the US Dollar following the release of better than expected German business sentiment indices. Consequently, the greenback weakened against both the Euro and Sterling on Friday. The surprisingly upbeat Kansas Fed manufacturing report also failed to arrest the steady downfall in the US Dollar against the common currency. Although last week’s FOMC minutes hinted that the Fed was closer to tapering its QE programme, contradicting comments by influential central bank officials throughout the week and mixed domestic macro data has left investors confounded on the status of the same. Meanwhile, the greenback has moved higher against the Euro in today’s trading session ahead of the US pending home sales data today which will be a precursor to a string of housing market reports this week. Moreover, following last week’s upbeat manufacturing PMI print, the various US regional manufacturing surveys, including today’s Dallas Fed manufacturing report will be closely followed by investors, along with the consumer sentiment indices, for further insights about the state of the US economy.

Euro – European Markets

Although Friday’s final reading of the German third quarter GDP data was in line with market expectations, buoyant business sentiment indices from the Euro zone’s largest economy surprised markets on the upside and lifted the common currency against its peers. With a broad based recovery in Germany, speculation of the ECB cutting its benchmark interest rates further have waned for the time being. Meanwhile, ECB officials continue to pledge support to the region’s fragile economic recovery, with Benoit Coeure and Joerg Asmussen indicating further cuts to interest rates and deposit rates respectively, if needed. The single currency is trading lower, albeit in a tight range against the majors this morning. The week ahead will keep investors on their toes with a slew of important macro releases lined up which will give further insights into the currency bloc’s recovery path. Additionally, market participants await drama in Italy, with the Senate scheduled to vote on Wednesday on whether or not to expel former Prime Minister Silvio Berlusconi.

Other Currencies – Highlights

In a rather choppy trading session, the Canadian Dollar weakened against the majors on Friday following the release of mixed Canadian consumer price inflation and retail sales data. Canada’s inflation rate for October dropped more than expected and below the Bank of Canada’s target, reinforcing the view that the central bank will hold rates lower for a longer period. However, the better than expected domestic retail sales report later in the day arrested the Canadian Dollar’s slide against its peers. With a relatively light domestic economic calendar and with the Canadian economy closely related with its southern neighbour, the US pending homes sales and Dallas manufacturing data later today will determine investor sentiment towards the Canadian Dollar in the session ahead. Later this week, the domestic third quarter GDP data, along with a raft of global macro releases will prove crucial for the Canadian Dollar against the majors.