European PMIs Disappoint

Even as markets await the release of another significant set of US economic data today, the fate of the Fed’s QE3 programme looks almost sealed, with the central bank expected to delay tapering its asset purchases following weakness in the labour market. In contrast to the recent US plight, manufacturing activity in China showed signs of a pickup, despite prevalent worries in the nation’s financial system. However, PMI data across Europe released earlier today has disappointed market participants, thereby limiting the upside for the Euro against the majors. At home, with yesterday’s BoE minutes revealing signs of optimism among policymakers, tomorrow’s third quarter GDP data will be keenly watched and will give a steer to the BoE’s policy thinking.

Pound Sterling – UK Markets

In the run up to yesterday’s BoE minutes, Sterling witnessed some selling pressure against the US Dollar and the Euro. As expected, the minutes revealed that policymakers unanimously voted to keep monetary policy unchanged. However, policymakers sounded a bit more upbeat about the UK economy, thereby casting doubts that the BoE could be ahead of other major central banks in embracing tighter monetary policy measures in the future. Against this backdrop the BoE Governor, Mark Carney’s speech later today will be closely scrutinised by investors. Meanwhile, Britain’s housing market continues to thrive, with mortgage approvals climbing to the most since December 2009. After dropping to a near two-month low against the Euro yesterday, Sterling has limited further downside against the single currency this morning following weak Euro zone manufacturing and services PMI data released earlier today. Today’s CBI industrial trends survey in the UK will be closely watched, especially after October’s PMI data suggested a slowdown in the manufacturing sector. However, most market attention is focused on tomorrow’s GDP report in Britain, which is expected to show a faster pace of expansion for the third quarter.

US Dollar – US Markets

“Risk-off” sentiment in markets weighed on riskier currencies and boosted demand for the US Dollar in the initial trading session yesterday amid concerns over rising money market rates in China. However, the greenback pared its gains against the majors later in the day amid continued expectations of the Fed maintaining the pace of its asset purchases in the policy meeting next week, following Tuesday’s disappointing jobs report. Later today, the initial jobless claims report in the US will shed further clarity on the health of the labour market. Meanwhile, the greenback has strengthened against the Euro in today’s trading session following disappointing PMI numbers in key European economies released earlier today. Investors have their plates full in terms of US economic releases in today’s session, with the manufacturing PMI, new home sales, trade balance and the regional Kansas Fed manufacturing index featuring on the calendar. The wide range of economic data coming after the prolonged government shutdown will be closely scrutinised by market participants for gauging the state of the economy.

Euro – European Markets

Riding on the back of continuing improvement in market sentiment over the past few trading sessions, the Euro hovered near two-year highs against the US Dollar and also strengthened against the Pound yesterday. The Euro received a further boost after data showed that consumer confidence in the Euro zone rose to its highest level since July 2011, pointing towards modest consumption in the region. The single currency also remained supported against the greenback amid growing hopes of the Fed continuing with its loose monetary policy in the near future. Meanwhile, after breaching the 1.38 mark against the US Dollar earlier in the day, the Euro has moved lower after data showed that manufacturing and services activity in the Euro zone expanded at an unexpectedly slower pace for October, highlighting that roadblocks continue to hamper the currency bloc’s nascent economic recovery. Additionally, the ECB warned yesterday that it will use stricter definitions when stress testing balance sheets of the region’s banks next year. Later today, a raft of important US economic data will determine trading sentiment in the Euro-US Dollar pair.

Other Currencies – Highlights

The Canadian Dollar weakened against its peers and dropped to the lowest level since June 2013 against the greenback yesterday after the Bank of Canada lowered its growth forecast for the country. With investor sentiment already hurt after Tuesday’s weak retail sales report, the central bank’s assessment that economic growth will be considerably weaker over the next few years further dented market confidence. The central bank also abandoned its tightening bias, thereby dampening expectations of an increase in borrowing costs in the near term. The weakness in the Canadian Dollar can also be attributed to the reduced demand for high yield currencies amid negative news flows from China’s money market. Meanwhile, the Canadian Dollar is trading in a tight range against its US counterpart this morning ahead of the release of the latter’s jobless claims and manufacturing activity data due later today. With no domestic economic data on tap for the week, next week’s monthly Canadian GDP data and a host of US macro releases will prove crucial for the Canadian Dollar against the majors.