UK’s consumer morale was the weakest in four months for October, according to a survey released earlier today, signalling that consumers were cautious about the nation’s ability to withstand a global downturn. Despite the disappointing report, the Pound remains well bid against the US Dollar in the final session of this week. However, next week’s key events such as the Bank of England’s (BoE) latest rate decision and the US nonfarm payrolls would determine whether this current bearishness in Sterling is reinforced or challenged.

In the session ahead, spotlight will be on the European Central Bank (ECB) and the US Federal Reserve (Fed) as data from the US and the Euro zone would depict the inflationary pressures that the respective nations are facing lately.

Pound Sterling – UK Markets

The Pound recovered most of its losses against the US Dollar yesterday. Soft macroeconomic data released in the US buoyed the currency pair, although UK macroeconomic readings released yesterday were tepid. The official BoE figures indicated that loan approvals for UK home purchases dropped in September for the first time in four months this year. However, reflecting strong past mortgage approvals and elevated consumer confidence levels, overall lending jumped at the fastest rate since December 2008. In addition, a survey by the Confederation of British Industry revealed that Britain’s retail sales growth for October was the slowest in six months following a strong September.

In more downbeat news, market research company, GfK, earlier today stated that its consumer sentiment indicator for October unexpectedly dipped to a four month low, signalling that consumers are starting to feel less confident amid global economic growth fears against a backdrop of improved real wage growth. Sterling, however, remains unperturbed to disappointing macro news and is trading higher against the US Dollar this morning.

US Dollar – US Markets

Most currency traders interpreted this week’s FOMC monetary policy statement as more hawkish than expected. Fed officials hinted that a further improvement in employment and inflation might be all that is needed to give the green signal to increase interest rates before the end of this year. The US Dollar had rallied across the board following the Fed’s assessment. However, the domestic currency struggled to retain its advance against the Euro and the Pound yesterday after data indicated that the US economic growth probably slowed sharply in the third quarter. The Fed had described the US economy as expanding at a moderate pace in its monetary policy statement.

This morning, the US Dollar has again failed to retain its upside momentum against its key peers, ahead of personal income and spending data and Fed’s favoured inflation metric scheduled later today. Also, the nonfarm payrolls report is up for release next week. These economic releases will be crucial for the FOMC and any signs of weakness in the reports could dash hopes of a December liftoff.

Euro – European Markets

Data released earlier today revealed that retail sales growth in Germany was muted for September, bucking expectations of a rise from a sharp decline in August. On an annual basis, German retail sales growth unexpectedly eased in the previous month, fuelling concerns that a dip in private consumption might act as a drag on growth in the Euro zone’s largest economy this year. Meanwhile, Spain’s economy experienced a slight easing in economic activity for the third quarter. However, the economy grew in line with market forecasts from a year ago, which is the fastest rate since 2008 and around the same growth level before the financial crisis. The shared currency is trading on a stronger footing against US Dollar post the economic releases.

The Euro could experience further volatility in trading against the major peers when Euro zone’s inflation figures releases today. Expectations are that inflation in the Euro area would fall out of negative territory for October, but zero inflation is still well below the ECB’s target which could justify the central bank’s recent warning of more easing measures in December.

Other Currencies – Highlights

The US Dollar – Japanese Yen currency pair experienced fresh bouts of volatility after the BoJ opted to leave its monetary policy unchanged and as markets digested staunch comments by the BoJ Governor, Haruhiko Kuroda. Following the rate announcement, the Japan’s central bank published its semi-annual outlook report in which it included a downward revision to the BoJ’s inflation outlook. The BoJ also delayed the timeframe to achieve its 2% price target citing a drop in energy prices. The BoJ Governor at a press conference held after the policy board meeting offered nothing noteworthy that was different from the outlook report. He reiterated that they will not flinch back from making necessary policy adjustments to achieve the bank’s price goal. He also acknowledged IMF’s concerns that a continued slowdown in China and emerging markets might hurt its trade and corporate earnings.

Going forward, investor focus will now shift towards a batch of US economic releases which are scheduled later in the day for further direction in the currency pair.