US Set to Hog Limelight Today

A raft of economic data from both sides of the Atlantic will provide investors a fairly clear idea about the state of affairs in the US and the Europe. In the aftermath of the recent turmoil and mostly mixed macro data, today’s releases will offer a comprehensive assessment of the two “economies.” Despite scant possibility of a change in policy stance by the Fed, the tone of the central bank’s post policy meeting statement will undeniably grab all market attention today. In the UK, Mark Carney indicated that if needed, the BoE will employ mechanisms to nip a potential housing bubble in the bud, before considering a hike in borrowing costs, thereby indicating an unchanged policy stance in the long run.  

Pound Sterling – UK Markets

Although the Pound traded on a weaker footing against the US Dollar yesterday, the weakness was largely attributed to the cautious approach adopted by investors ahead of the outcome of the Fed meeting today. At home, aided by low interest rates and surging consumer confidence, a strong recovery in the housing sector has continued for September, as indicated by yesterday’s mortgage approval numbers which rose to the highest level since February 2008. Meanwhile, the BoE Governor, Mark Carney, while acknowledging the positive impact of the robust housing market on the nation’s growth, stated that the central bank is "vigilant" about the potential vulnerabilities to the sector. The Pound is nearly unchanged from its yesterday’s close against the greenback this morning, ahead of the FOMC meeting today. The just out Lloyds business barometer survey has shown a rise in business sentiment in the UK for October. Apart from the Fed meeting today, a barrage of significant US economic data, including the ADP employment numbers and the consumer price inflation print, among others will keep market participants on their toes.

US Dollar – US Markets

  Though yesterday’s US economic data was disappointing, a broad based rally saw the US Dollar end higher versus the Pound and the Euro. While the retail sales dropped marginally last month, the nation’s consumer morale registered a sharp fall for October, dented by a bitter budget battle in Washington. The recent dismal performance has highlighted the recent fragile economic recovery, giving policymakers enough reasons to defer tapering its asset purchases. Meanwhile, the US Dollar is trading in a tight range versus its major peers today morning as investors remain on the sidelines for the outcome of the two-day FOMC meeting. The tone of the post-meeting statement could have a bearing on the US Dollar going ahead as investors scrutinise the central bank’s take on the impact of recent economic developments. Additionally, the October ADP employment report later today is likely to reflect the repercussions of the partial shutdown on the country’s labour market and will influence trading in the US Dollar. Moreover, news flow emanating from Europe is also likely to steer risk appetite further.  

Euro – European Markets

  The Euro pared gains after momentarily rising above the 1.38 mark versus the US Dollar yesterday after Edward Nowotny, an ECB governing council member, indicated that while the central bank has no realistic intension of cutting the key interest rate further, policymakers will have to live with a stronger Euro. In today’s session, the first positive Spanish GDP print in over two years has led the common currency to trade higher against its peers. Additionally, data just out has revealed that Germany’s unemployment scenario has remained fairly unchanged this month, in line with expectations. Euro zone economic sentiment indices later today are expected to show an improvement for October and will gain modest attention. With investors waiting on the sidelines ahead of the US Fed’s policy meeting later today, volatility in the single currency in the session ahead cannot be ruled out.  

Other Currencies – Highlights

  The New Zealand Dollar is trending higher versus the US Dollar ahead of US Fed’s announcement on interest rates and monetary policy decision. The Reserve Bank of New Zealand (RBNZ), in its policy meeting later today, is expected to keep the official cash rate at a record-low 2.5%, though continuing strength in the local currency has raised expectations of a partial softening in interest rates. The recent fiscal problems in China, New Zealand’s biggest importer, as well as weak trade data have raised apprehensions over the nation’s economic outlook. Meanwhile, Moody's Investors Service indicated that it discussed cutting the country's sovereign “Aaa” credit rating with a stable outlook before affirming it in its last review. The outcome of the US Fed’s two-day policy meeting today is likely to steer commodity currencies, especially the New Zealand Dollar, in the near term.