Preliminary GDP readings have shown that growth in the UK slowed during the third quarter of 2014, as growth was impeded by weakness in Europe. However, the numbers were in line with market estimates which has resulted in a positive reaction for Sterling against the majors. It will be interesting to see if today’s data assists BoE policymakers in bringing forward their expectations for a rate rise.
The GfK survey released earlier today provided further evidence that macro challenges in Germany are subsiding after yesterday’s manufacturing PMI reading surprisingly improved. Across the Atlantic, new home sales numbers will be eyed later today to determine housing market conditions in the United States.
Pound Sterling – UK Markets
Data just out revealed that Britain’s GDP expanded at a slower pace for the third quarter, albeit in line with market estimates. However, today’s GDP reading was the first estimate and considering that economic reports in the UK have been mixed lately, any revisions to the reading going forward cannot be ruled out.
In yesterday’s trading session, Sterling remained under pressure against the majors following the release of weak UK macro data. A report showed that annual retail sales growth eased more than expected for September. Another survey revealed that banks approved the fewest mortgages for September since August 2013. Considering that the domestic macro trend is showing some signs of weakness, market participants remain concerned about the increased vulnerability of Britain to the European economic troubles. Separately, the BoE Deputy Governor, Ben Broadbent, indicated that interest rates are likely to remain low for a prolonged period and the BoE would raise interest rates gradually as headwinds to growth subside.
US Dollar – US Markets
The greenback remained range bound against the majors yesterday. Economic data released in the US yesterday was mostly downbeat. The Markit preliminary report revealed that the pace of manufacturing sector activity growth in the US decelerated during October. The report further indicated that output, new orders and new export orders witnessed slower growth. This has stoked concerns among investors that the US manufacturing sector may be weakening during the fourth quarter amid macro troubles in the Euro zone. Separately, the US jobless claimants report showed that the number of first time jobless beneficiaries increased more than expectations, but remained close to its pre-recession lows. With the slack in the US labour market abating, traders will eye next week’s US Fed policy meeting to determine if the central bank winds up its bond buying programme this month.
The only notable macro release in the US today is the new home sales report for September. This release will be crucial in helping traders to gauge the health of the nation’s housing sector after existing homes sales data released earlier this week surprised investors on the upside.
Euro – European Markets
The GfK report released in Germany earlier today showed an unexpected improvement in consumer morale for November. This is another encouraging economic release during this week, particularly after yesterday’s upbeat German manufacturing PMI reading. However, the Euro showed little reaction to today’s macro data, as traders eye more evidence to ascertain that a meaningful economic recovery is underway in the region. Market participants will closely eye next week’s flash estimate of German consumer price inflation for October which is expected to an acceleration for the first time in last four months.
After a media report released earlier this week revealed that eleven banks in Europe might fail the ECB’s stress test, the ECB responded by quoting the media report as speculative. However, investors will keep an eye on the result of the central bank’s finding over this weekend. Besides, the single currency could witness increased volatility ahead of the ECB’s policy meeting scheduled in early November, especially after reports emerged that the ECB might purchase corporate bonds in the near future.
Other Currencies – Highlights
The Japanese Yen lost ground against the greenback in yesterday’s trading session, despite preliminary data in Japan showing an unexpected improvement in the nation’s pace of manufacturing activity for October. Data further revealed that the improvement in the nation’s manufacturing sector was led by an increase in domestic as well as overseas orders. This has strengthened prospects that the nation might finally be recovering from the impact of the April sales tax hike. However, next week’s Japanese consumer price inflation and labour market data will be crucial in helping investors to reassess their view about the nation’s economy and gauge the Bank of Japan’s progress towards its price stability target.
Meanwhile, the Japanese Yen is trading in a tight range against the majors this morning. With no crucial economic releases in Japan, the US Dollar-Japanese Yen pair is likely to take direction from US housing data due later today.
Markets Turn Choppy Ahead of Key Data
British Pound Extends Slide as Cross-Party Talks Collapse