All Eyes On US Markets

Britain’s housing market recovery seems to have gained momentum, as indicated by the steadily rising mortgage approvals. With the government further supporting the sector by recently bringing forward the implementation of “Help to Buy” scheme, the housing market is set to experience further buoyancy. Across the Atlantic, all eyes are glued to the two-day FOMC meeting commencing today. Although prospects of a change in policy stance are minimal, the central bank’s outlook towards the economy will drive risk sentiment in the days ahead. Also, today’s consumer confidence and retail sales data will go a long way in ascertaining the US consumer behaviour in the near term.

Pound Sterling – UK Markets

Following the surprisingly disappointing retail sales report, the Pound slipped below the 1.62 mark against the US Dollar yesterday. The CBI distributive trades survey showed that retail sales growth in the UK was almost flat for October, although retailers expect a rebound in sales next month on the back of improving consumer confidence. The downside for Sterling investors was further compounded by a better than expected US industrial production print, indicating a pickup in industrial activity in the world’s largest economy ahead of the two-day Federal Reserve policy meeting beginning today. Meanwhile, Sterling is trading under pressure against the majors in today’s trading session despite data just out showing a rise in domestic mortgage approvals for September. With the UK government accelerating the implementation of the second phase of its supportive housing market policy earlier this month, the rapidly recovering sector is expected to drive the nation’s economic growth in the final quarter of 2013. Later today, the delayed US retail sales report for September will be keenly eyed to ascertain the level of consumer confidence in the economy, just ahead of the prolonged government shutdown and fiscal woes.

US Dollar – US Markets

In the run up to the two-day FOMC policy meeting beginning later today, investors cheered the upbeat US industrial production report which comfortably beat market estimates and provided some respite to the greenback against its major peers yesterday. However, the upside was capped following a sharp and unexpected fall in pending home sales and deteriorating manufacturing activity in the Dallas region. The US Dollar is trading in a tight range against the common currency this morning, as traders remain cautious ahead of the Fed policy meeting outcome tomorrow. With investors sentiment already dented by the recent government shutdown, the spate of mixed economic data lately has done little to inspire confidence. In this context, the Fed is expected to maintain status quo on its monthly asset purchases programme to support the economy, at least until next year. With several Fed officials calling for more upbeat economic data before beginning to taper QE3, today’s September retail sales and monthly budget statement will be closely followed for further direction. Also, today’s US consumer confidence report is likely to show dwindling consumer sentiment, especially in the wake of the government shutdown which has cast a dark shadow over the economy.

Euro – European Markets

A lack of domestic economic triggers saw the common currency responding to news flows emanating from across the Atlantic yesterday. With the US reporting a better than expected industrial output for September, the Euro weakened against the greenback. However, the downside was restricted following the release of the unexpectedly dismal US pending home report later in the day. However, the mixed bag of US macro data will do little to alter the Fed’s stance on policy when policymakers begin the two-day meeting later today. Meanwhile, the single currency is trading in a tight range against the US Dollar in today’s trading session, as markets have adopted a wait and watch approach ahead of the FOMC meeting. The Euro has remained oblivious to the upbeat Spanish retail sales print earlier today. Later today, a slew of significant US economic releases will give further direction to the Euro-US Dollar pair. In the aftermath of the recent downbeat German economic data, market participants are also looking forward to tomorrow’s German employment and Euro zone confidence indices for further direction to risk appetite.

Other Currencies – Highlights

The Australian Dollar has weakened to a two-week low against the US Dollar this morning after the Reserve Bank of Australia Governor, Glenn Stevens, indicated that the domestic currency is likely to move lower in the future, citing a decline in Australia’s commodity exports. Furthermore, the central bank chief played down concerns of a housing bubble in the country, stating that “some” rise in housing prices is a normal response to accommodative policy and lower borrowing costs. Against this backdrop, Thursday’s new home sales data will be keenly followed for further insights into the Australian housing market. Meanwhile, with no domestic economic data on tap until Thursday, the movement in the Aussie Dollar will be influenced by news flows emanating from both sides of the Atlantic, especially the Fed policy meeting outcome due tomorrow. Later this week, apart from the domestic housing data, the business confidence and manufacturing PMI reports will prove crucial for the Aussie Dollar against the majors.