Euro zone PMIs Hint at a Pick-up in Growth
In Europe, the week has commenced with the first available information on economic trends in November after data released earlier in the day boosted optimism about the health of the Euro area’s economy. Business activity in the Euro zone expanded at the fastest pace since mid-2011 in November helped by the service sector, indicating a pickup in growth in the final quarter. However, the French services sector displayed weakness due to the recent Paris attacks. Moving ahead, investors will eye the release of US manufacturing PMI and existing home sales report due later in the day. Meanwhile, it is a light economic calendar day in the UK today.
Going forward, spotlight will shift towards third quarter GDP data in the UK and the US scheduled this week.
Pound Sterling – UK Markets
This morning, the Pound has slipped below the 1.52 mark against the greenback. Amid the absence of notable UK macroeconomic indicators, trading direction in the currency pair today will be influenced by any chatter about a potential Fed December rate rise and a set of US macro updates.
In the coming days, Sterling might further struggle to hold its ground against the US Dollar if market participants completely give up on hopes for an imminent rate rise by the BoE. UK Chancellor’s Autumn Statement, BoE’s quarterly inflation report and third quarter growth figures scheduled throughout the week will be a key focus for Sterling investors. Though the Autumn statement might not have a major impact on trading in the Pound against the majors, interests will centre on any changes in UK’s fiscal outlook over the period of next five years. Also, a fresh batch of central bank rhetoric in its quarterly inflation report might highlight BoE Governor Mark Carney’s more neutral outlook for monetary policy. Meanwhile, Friday’s UK GDP data is expected to confirm that the economy expanded in the third quarter.
US Dollar – US Markets
The US Dollar is trading on a firmer footing against the Euro this morning, with market participants looking forward to a Fed announcement later in the day about raising discount rates that it charges other banks after lending. Though the announcement should not have any impact on currency trading, it nonetheless could signal that the Fed is ready to tighten its monetary policy in December.
On the macroeconomic front, a flash manufacturing PMI and existing home sales report in the US will be scrutinised to gauge the health of the nation’s economy in the final quarter of this year. Regional manufacturing benchmarks for November published by the US Fed recently have offered evidence of a slight rebound in activity. Today’s preliminary PMI will be closely eyed to see whether this optimism for manufacturing holds true for November. Besides, the existing home sales print is anticipated to show a slight moderation for October. Going forward, an upward revision in the third quarter US GDP data tomorrow could fuel expectations of a December rate rise and could boost the attractiveness of the greenback against the major currencies.
Euro – European Markets
The Euro attempted a rebound against the US Dollar earlier today, but failed following a mixed bag of economic data releases in Europe today. The latest business activity reading in the Euro zone’s largest economy painted an upbeat picture, with the services index recording its strongest reading since September 2014 and a gauge of manufacturing activity topping market expectations for November. Today’s economic update for now defies growth worries for the German economy in Q4. On the other hand, French private sector activity slipped in November as services growth slowed following the recent terrorist attacks in Paris. However, the faster than expected rise in French manufacturing activity helped keep the private sector in expansionary territory.
In the Euro area, the combined private sector activity measure rose in November, with both manufacturing and services PMI surpassing market estimates. However, the upturn in business activity in the 19-nation region is unlikely to offset the strong dovish signals by the ECB Chief Mario Draghi as the inflation rate is nowhere closer to its desired level.
Other Currencies – Highlights
The Kiwi Dollar halted its last week’s upside rally against the greenback this morning amid rising speculation that the RBNZ might cut its key interest rates at its December monetary policy meeting as inflationary pressures in the nation remain weak with dairy prices falling at the last two Fonterra’s auctions. Also, more Fed comments supporting a December rate rise on Friday and latest chatter that the Fed will increase the discount interest rates charged to commercial banks and other financial institutions later today have provided support to the US Dollar and dragged the New Zealand Dollar lower.
Going forward, the currency pair will head into a holiday shortened trading week in the US with currency markets likely to experience light volumes and lower liquidity. In New Zealand, trade data and ANZ’s business outlook report will be in focus with the RBNZ up for review the following week. Also on tap would be the US third quarter GDP report, manufacturing, housing and durable goods orders due this week that could influence trading in the pair.