U.S. Shutdown Shockwaves Continue

Yesterday’s dismal non-farm payrolls report confirmed the widely held view that the Fed will continue to maintain its accommodative stance for the foreseeable future, prompting investors to move away from the US Dollar. The Fed faces a tricky situation, as no conclusive data on the employment front will be available until early next year, given the expected distortion in the next two employment reports owing to the government shutdown. Not surprisingly, today’s BoE minutes revealed that policymakers unanimously voted for leaving the monetary policy stance unchanged on upbeat growth outlook. In Europe, apart from today’s consumer confidence data, tomorrow’s manufacturing PMIs across key Euro zone economies will be closely watched.

Pound Sterling – UK Markets

A dismal US non-farm payrolls report helped cement hopes that the US Fed might postpone tapering QE3 until next year, leading the Pound to nudge higher versus the US Dollar yesterday. A lower than expected borrowing by the UK government in September also offered support to the Pound. However, the UK Chancellor, George Osborne, vowed to stick to austerity measures stating that the economic recovery alone would not be enough to fix the nation’s finances. In today’s session, Sterling has reversed most of its gains versus the US Dollar and is trading under pressure against the Euro. The just released BoE minutes revealed that policymakers unanimously voted to keep monetary policy unchanged, as policymakers believed that the economic outlook has improved following recent encouraging UK economic data. The November inflation report is likely to shed more clarity on the BoE’s views on growth and employment. Meanwhile, the UK housing market continues to recover, as data from the BBA revealed that mortgage approvals in the UK rose last month. Apart from important global cues during this week, investors will focus on the preliminary third quarter UK GDP reading scheduled for Friday.

US Dollar – US Markets

The US Dollar tumbled against its major peers in yesterday’s trading session, hitting a fresh two-year low versus the Euro, after the employment report showed that US employers hired fewer people than anticipated for September, boosting speculation that the US Fed might maintain the current pace of its monthly bond buying for a longer period. However, the unemployment rate edged closer to the central bank’s target rate. The greenback has taken a breather against the common currency in today’s trading session. With little on the domestic economic calendar, today’s US house price data will gain modest market attention and is expected to reveal the impact of elevated mortgage rates on the housing sector. Additionally, tomorrow’s initial jobless claims will hold significance for determining the trend in currency markets, especially after yesterday’s poor payroll numbers.

Euro – European Markets

The single currency breached the 1.37 mark versus the US Dollar yesterday, benefiting from the weakness in the latter, as slower growth in the US job market bolstered talks of the Fed delaying the withdrawal of its monthly asset purchases to next year. Meanwhile, the Euro has pared some of its gains against the US Dollar while it has strengthened versus the Pound this morning. On the macro front, data released earlier today showed that business conditions in France improved marginally for the current month, in line with market estimates. Going forward, the Euro zone consumer confidence report later today will be keenly eyed and is expected to show an improvement for October. Later today, the ECB is set to outline its plan on how it will scrutinise top Euro zone lenders in its Asset Quality Review, before the banking supervision is centralised under its roof from November 2014. Additionally, tomorrow’s manufacturing and services activity data across Europe for October will be scrutinised for further indication on the strength of the economic recovery in the region in the initial phase of the fourth quarter.

Other Currencies – Highlights

The Australian Dollar rose to a four month high versus its US counterpart yesterday following a weak US jobs report. However, the Aussie Dollar has pared its gains in today’s trading session, as investors remain concerned about the outlook for the Chinese economy due to a jump in China’s money-market rates and poor Chinese business sentiment data for October. Additionally, the Conference Board’s leading economic index in Australia deteriorated for August, suggesting that the economy may continue to lose momentum in the coming months. However, data showed that consumer prices in Australia rose at a faster than expected pace for the third quarter, helping assuage fears of further interest rate cuts in the near future, thereby limiting the downside in the Aussie Dollar. On account of a light domestic economic calendar during this week, markets will focus on flash manufacturing prints across Europe due tomorrow and China’s overnight manufacturing reading for further direction.