Calm Outlook

The FOMC will end a two-day policy meeting on Wednesday but prospects of the Fed tapering its stimulus measures seems unlikely, given the recent government shutdown and the absence of extensive economic data to analyse the recent performance of the US economy. Across the Atlantic, a raft of macro data today will be scrutinised for further direction, given Friday’s mixed set of economic data in the world’s largest economy. At home, Friday’s GDP data was in line with market estimates and the focus now shifts to this week’s manufacturing PMI report for deciphering the trend for the current quarter. Across Europe, forward looking sentiment indices and inflation numbers from the Euro zone will gain maximum market attention this week.

Pound Sterling – UK Markets

Although the UK economic growth was in line with estimates, the Pound slid marginally against the US Dollar on Friday in the absence of any positive surprises from the GDP report. With a major chunk of the UK third quarter growth coming from the buoyant housing and construction sector activity, the possibility of another housing bubble popping up in the near future cannot be ruled out, despite recent assurances from the BoE officials. The Pound is trading flat against both the Euro and the US Dollar in today’s trading session, as traders await the CBI reported sales data for further clarity on trends from the domestic retail sector. With retail sales in Britain surprising on the upside for September, it remains to be seen whether the momentum was sustained for the current month. Meanwhile, the Governor, Mark Carney, indicated that the BoE’s endeavour to tame price pressures in the economy was slightly dented by a higher than expected rise in energy prices. Going forward, all eyes remain focused on the UK manufacturing PMI data coming Friday for initial signs on the nation’s growth prospects during the final quarter of 2013.

US Dollar – US Markets

The US Dollar recovered some of its losses against the common currency in the latter part of Friday’s trading session following mixed US macro data. Though durable goods orders rose more than expected for September, new orders of non-military capital goods excluding aircraft, an indicator of business spending plans, declined for September. This along with weak consumer confidence data for October has reinforced market view that the prolonged government shutdown might have taken a toll on the US economy. With the US Dollar looking for direction against the majors this morning, traders will keep an eye on a raft of US economic data including industrial production and pending home sales for further direction. Going forward this week, markets await retail sales and manufacturing data which are likely to paint a dismal picture of the economy, providing another hurdle for the US Dollar bulls. However, most of market attention will remain focused on the outcome of the FOMC meeting on Wednesday. Given market expectations of the Federal Reserve continuing with its QE3 programme for longer, the greenback is unlikely to gain traction against the majors during this week.

Euro – European Markets

The Euro came off its fresh two-year highs versus the US Dollar on Friday following an unexpected deterioration in German Ifo sentiment indices for October, raising concerns over the health of the region’s largest economy. The recent deterioration in PMI readings for October seems to have reflected on the sentiment data, as European businesses grew less optimistic about future conditions. Investors’ appetite also remained subdued, as worries in the Chinese financial system came to the fore. However, losses were pared in the latter part of the trading session, as mostly weak economic data from the US further bolstered market hopes that the US Fed might refrain from tapering its bond buying programme at the upcoming FOMC meeting. In today’s trading session, the common currency is trading in a tight range against the majors amid a lack of decisive European macro data. With last week’s Euro zone consumer sentiment data showing an improvement, tomorrow’s forward looking German Gfk consumer confidence report will be keenly eyed for further direction. Additionally, Spain’s third quarter GDP and Euro zone consumer price inflation data later this week might prove crucial for the Euro against the majors.

Other Currencies – Highlights

The Japanese Yen is trading under pressure against the majors this morning following the Bank of Japan’s deputy Governor, Kikuo Iwata’s comments that the central bank will consider further monetary action, if it faces difficulty in achieving its two percent inflation target over the longer term. Earlier this year, Japan’s Prime Minister, Shinzo Abe had introduced the programme of monetary easing, fiscal stimulus and structural reforms in order to revitalise the nation’s economy. With Friday’s data showing that the Japanese consumer price inflation rose to the highest level in five years, Abe’s policies seem to be having a positive impact on the economy. With little on the domestic front to trigger risk appetite, the Japanese Yen will take direction from news flows emanating from the US in today’s trading session. For the week ahead, investors will keep a tab on a slew of important domestic macro data for further direction to risk appetite. However, the outcome of the Fed policy meeting later this week will undoubtedly grab maximum market attention.