After months of negotiations with potential allies, the German Chancellor, Angela Merkel, has moved closer to form a coalition government with the SPD. However, minor roadblocks to government formation persist, with the agreement subject to a vote by SPD members next month. Meanwhile, signs of political stability emerged from Italy, as the Italian government survived a confidence vote in the Parliament.
In the UK, the just out GDP numbers for the third quarter were in line with the earlier estimate. However, rising business investment and household consumption hold promise for further economic expansion in the final quarter. In the US, waning consumer sentiment threatens to dampen the holiday spending mood, thereby negatively influencing the economic recovery.
Pound Sterling – UK Markets
The Pound closed higher against the US Dollar yesterday following the release of downbeat US consumer confidence data. Earlier in the day, views expressed by Mark Carney in the testimony to the Parliament’s Treasury Committee dragged the Pound lower against the majors. The BoE chief, while defending the central bank’s forward guidance policy opined that the BoE will not rush into hiking interest rates as soon as the employment rate hit the 7% threshold.
Meanwhile, the Pound is trading higher against the majors in today’s trading session. The revised reading of the UK third quarter GDP data failed to offer any upside surprises to market participants however the Pound has found significant support following its release.. Meanwhile, business investment in the UK climbed up during the third quarter. Later today, the CBI survey of retail sales will be eyed by investors to ascertain trends in domestic consumer spending going forward. Additionally, investors will keep a tab on today’s important US economic data ahead of the Thanksgiving holiday for further direction to risk appetite.
US Dollar – US Markets
Following a set of mixed domestic economic data, the US Dollar weakened against its counterparts yesterday. The delayed housing report showed an unexpected rise in building permits in the US, climbing to the highest level in more than five years for October, while home prices in major cities in the US continue to move higher. However, consumer sentiment in the US continues to deteriorate, with the latest print showing that consumers’ confidence in the economy fell to the lowest level in seven months for November. The downbeat November print has prompted market participants to stay watchful of the trends from the retail sector during the upcoming holiday shopping season.
The greenback is trading lower against the majors this morning ahead of the durable goods orders report which is expected to trigger some volatility in markets. Furthermore, the domestic initial jobless claims data will also attract market attention going forward, especially in the wake of next week’s all important non-farm payrolls report.
Euro – European Markets
The common currency moved broadly higher against the US Dollar yesterday as the mixed economic data from across the Atlantic dampened demand for the greenback, underpinning investor appetite for the Euro. In a major step forward in Germany, Angela Merkel and the centre-left Social Democratic Party have struck a deal to form a coalition government. The terms of the deal call for a nationwide minimum wage and an increase in spending on pensions and infrastructure without raising taxes. However, government formation will be subject to passing of the agreement by the entire cadre of the SPD in a vote next month. In Italy, the Italian Prime Minister, Enrico Letta, has won a confidence vote on the 2014 budget, despite Silvio Berlusconi withdrawing support to the government ahead of the Senate’s decision on whether or not to expel the former Prime Minister from the Parliament.
Other Currencies – Highlights
The New Zealand Dollar has nudged lower against the majors this morning despite the surprisingly upbeat trade data released earlier in the day. The trade deficit in New Zealand was at the lowest level October month since the mid-1990s, driven largely by a record surge in exports for the month. Agricultural commodities contributed the most to the soaring exports as the nation’s agricultural production rebounded after last summers’ devastating drought which had crippled the Kiwi economy.
In the session ahead, important news flows emanating from both sides of the Atlantic will prove crucial for the Kiwi Dollar against the majors. Meanwhile, market participants will keep a tab on the domestic business confidence report and a string of global macro releases tomorrow for further direction to risk appetite.
Dollar Weakens as Fed Turns Dovish, Eyes on BoE
Euro Plummets as Draghi Opens Door For Rate Cuts
British Pound Stays Under Pressure Ahead of Tuesday's Vote