With the third quarter nearing its end, there remains a sense of unease among market participants as the latest survey from Ifo showed further weakness in the German business climate. With the latest PMI readings offering mixed signals and mood in the private sector turning sour, the threat of Europe’s largest economy sliding into a recession cannot be ruled out.
With uncertainty surrounding the Scottish referendum behind us, market focus has shifted back to fundamentals. Against this backdrop, the BoE Governor’s speech tomorrow is likely to attract increased market attention. Across the Atlantic, new home sales numbers due later today will remain on traders’ radar, especially after this week’s soft housing data.
Pound Sterling – UK Markets
Data released yesterday showed that the UK public sector borrowed more than expected for August, as lower tax collection and an increase in government spending weighed on the central bank’s finances. With recent promise by the UK Prime Minister that he will offer concessions to Scotland in terms of taxes, spending and welfare, further strain on the nation’s finances cannot be ruled out going forward. Additionally, the BBA report revealed an unexpected drop in the nation’s mortgage approvals for August. The softness in the uptake of mortgages can be attributed to the tough measures adopted by the BoE earlier this year to curb lending and control the nation’s housing market from overheating.
With little on the domestic macroeconomic front today, Sterling is trading in tight range against the majors. Markets will keenly eye tomorrow’s comments from the BoE Governor, Mark Carney, who would present his views for the first time after the outcome of the Scottish independence referendum. With market focus back on fundamentals, investors will look for further insights into the nation’s macroeconomic health and hints on the timing of an interest rate hike.
US Dollar – US Markets
The greenback rose against the majors in yesterday following the release of Markit manufacturing PMI report. Data showed that the pace of manufacturing activity in the nation was slightly slower than expected for September. However, growth in new orders and employment in the manufacturing sector remained robust, adding to optimism that the US economy is on course to register a sustained pace of economic growth. Separately, the President of the Minneapolis Fed, Narayana Kocherlakota, a well-known dove, indicated that the headline inflation rate might take a long time to reach the central bank’s 2% target. He added that the Fed needs to be careful about raising interest rates in the absence of clarity over the trajectory of inflation in the economy.
Meanwhile, the greenback is trading in a tight range against the majors this morning. In the light of weak existing home sales data reported earlier this week, markets will keep a tab on today’s new home sales figures which is expected to show a rebound for August. Any downside in today’s housing data could probably suggest a deterioration in domestic affordability.
Euro – European Markets
The common currency is trading in a tight range against the majors this morning. Data from the Ifo survey indicated that sentiment among businesses in Germany deteriorated for a fifth month in a row for September. It seems that domestic firms have turned pessimistic over the future outlook as persistent geopolitical tensions in Ukraine continued to weigh on the German business climate. Amid signs of weakness in German business confidence, market participants fret the possibility of the largest European economy sliding into a recession for the third quarter.
The Euro remained range bound against its key counterparts in yesterday’s trading session. Most preliminary PMI readings across key European nations released yesterday were weaker than expected for September, further affirming that the region’s economy continues to remain under pressure. Additionally, the ECB Governing Council member, Ignazio Visco, indicated that the Euro zone might struggle to recover from the economic crisis despite the central bank announcing new stimulus measures in October, further weighing on the Euro.
Other Currencies – Highlights
The New Zealand Dollar lost ground against the greenback in yesterday’s trading session after China’s manufacturing PMI report, which was mostly encouraging, indicated that employment growth in the nation remained weak. Signs of a broad-based weakness in the world’s second largest economy resulted in the Kiwi Dollar-US Dollar pair to drop below the 0.81 mark. Meanwhile, data released late yesterday indicated that New Zealand’s trade deficit narrowed unexpectedly for August due to strong growth in cattle exports to China.
With little on the domestic economic front, the Kiwi Dollar is likely to trade in a tight range against the greenback in today’s trading session. Markets will keep a tab on tomorrow’s US durable goods orders and services PMI data for further direction to New Zealand Dollar against the US Dollar.
US Dollar Under Pressure
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