The End of an Eventful Week

At home, a day after the BoE opined that the UK economic recovery was “taking hold”, a weaker than expected retail sales print came in as a reality check to investors hoping for swift sustainable growth. Meanwhile, the just released public finances report has revealed that the government borrowed ₤11.5 billion for September, marginally lower than market expectations. In Europe, the German elections over the weekend will gain considerable market attention. With markets yet to come to terms with the surprisingly dovish stance adopted by the Fed, today’s comments by three Fed officials will be keenly watched for their views on the central bank’s decision to delay tapering QE3.

Pound Sterling – UK Markets

A combination of unexpectedly weak retail sales and profit booking by traders, dragged the Pound lower against the majors yesterday. The dismal performance was attributed to disappointing food and household goods sales which contributed the most to the overall drop in numbers. However, a separate report by the CBI revealed that factory orders rose to the highest level in six years, while output expectations also climbed to the most since March 1995, confirming that manufacturing recovery in the UK is gathering pace. In today’s trading session, Sterling is trading in a tight range against the majors this morning. Meanwhile the public finances report just released has shown a marginally less than expected increase in government borrowings for August. With no major domestic economic releases on tap today, Sterling investors are expected to keep an eye on global cues for further direction. Going forward, next week’s final reading of the second quarter UK GDP and a slew of global economic releases will hold significance in determining risk appetite.

US Dollar – US Markets

The Euro-US Dollar pair was pretty volatile yesterday, as the unexpected Fed policy decision to refrain from tapering was countered by better than expected initial jobless claims and existing home sales data. A more than expected fall in the number of people claiming jobless benefits and a higher print for existing home sales supported the greenback against the majors. Additionally, manufacturing activity in the Philadelphia region showed a sharp improvement for September, providing encouraging signs surrounding the nation’s manufacturing activity for the month. Against this backdrop, next week’s manufacturing PMI will be keenly watched for further direction. Meanwhile, the greenback is searching for direction against the majors in today’s trading session amid a lack of decisive economic triggers. Later today, speeches by a few Fed officials will be closely followed by investors for insights into the Fed’s decision to maintain status quo with regards to its ultra loose monetary policy. Moving ahead, apart from the PMI report, the second quarter GDP data and a string of important macro data due next week is expected to influence market sentiment.

Euro – European Markets

A lack of domestic economic triggers resulted in the single currency trading on global economic cues against its peers over the last few days. With the Fed’s decision to continue with its quantitative easing measures, the Euro climbed to a seven-month high against the greenback. However, yesterday’s overall upbeat US economic data somewhat capped the Euro’s upward march against the US Dollar. Meanwhile, the common currency is searching for direction against the greenback this morning ahead of the Euro zone consumer confidence data later today, which is expected to show an improvement for September. Additionally, a speech by the Bundesbank President, Jens Weidmann, has the potential to sway market sentiment. However, most market attention is focused on this weekend’s German election, as an unfavourable result for the incumbent German Chancellor is likely to affect the region’s future economic policies and could have a bearing on the currency bloc’s growth prospects. Moving forward, a barrage of important economic releases, especially manufacturing and services PMIs across Europe, will keep traders on their toes next week.

Other Currencies – Highlights

The Japanese Yen is trading on a stronger footing against its major rivals in today’s trading session following the Bank of Japan Governor, Haruhiko Kuroda’s comments that the economy is expected to continue its recovery at a moderate pace. The central bank Chief also sounded optimistic about the pick-up in the nation’s exports on the back of a gradual recovery witnessed in the US and Europe. The Yen also remains supported against the greenback, as traders continued to avoid building positions in the US Dollar in the aftermath of the Fed’s unchanged policy. With no domestic economic data on tap today, the Yen will take direction from news flows emanating from both sides of the Atlantic in today’s session. Moving ahead, next week’s domestic consumer price inflation data will be eyed, especially considering the Bank of Japan’s commitment to achieve and maintain the inflation rate of 2%.