Government Borrowing in the UK Declines
Public finances data in the UK showed that government borrowing dropped for October. Today’s data might have provided some relief to the UK Chancellor, considering his plans to reduce the fiscal deficit. However, Sterling failed to remain supported above the 1.57 level against the greenback, after yesterday’s upbeat UK retail sales report had lifted the Pound.
Across the Atlantic, mixed economic data provided little support to the greenback yesterday. Market participants cheered encouraging US consumer price inflation data, but the optimism proved short-lived following a weak Markit manufacturing activity report in the US. In Europe, the ECB Chief continued to strengthen prospects of additional easing measures in the region, thereby weighing heavily on the performance of the Euro this morning.
Pound Sterling – UK Markets
Data just out has shown that public sector net borrowing in the UK dropped for October. This might have eased the mind of the UK Chancellor, George Osborne, especially after he recently raised concerns about the increasing government debt. Government borrowing for the first half of this fiscal year is already higher than that reported in the same period last year. Against this backdrop, traders will now eye public sector borrowing data going forward to verify if the Chancellor’s deficit reduction target is met or not. Meanwhile, the Pound has shown little reaction to today’s domestic macro data and has remained broadly range bound against the greenback. Going forward, traders will eye Britain’s revised GDP data for the third quarter due next week.
The Pound gained ground against the majors yesterday following the release of an upbeat retail sales report in the UK. Data showed that sales rebounded firmly on a monthly basis for October, as there was growth in all retail segments except non-store retailing. With domestic spending remaining firm amid low energy prices and an intense supermarket price war, it will be interesting to see if the pre-festive season shopping keeps retail demand supported for November.
US Dollar – US Markets
The greenback lost ground against the Pound yesterday following the release of upbeat UK retail sales numbers. However, strong US consumer price inflation data later pared some of those early session losses in the greenback. The report showed that consumer prices in the US unexpectedly remained steady for October, while the core inflation rate ticked higher. As weak energy prices created downward pressure on the nation’s inflation, rising shelter and medical costs prevented the rate from slipping further. Separately, the Markit flash manufacturing PMI reading showed that the pace of manufacturing activity in the US slowed unexpectedly for November. With the domestic activity slowing, investors’ fears have heightened that the nation’s economy is losing momentum due to subdued global macro conditions.
With little on the domestic macroeconomic front, the greenback is expected to remain range bound against its key peers this morning. Going forward, next week’s second GDP estimate in the US for the third quarter will attract considerable attention, especially amid expectations of a downward revision to the reading.
Euro – European Markets
The Euro has weakened against its major peers this morning after the ECB President, Mario Draghi, warned earlier today that the Euro zone economy is likely to remain stagnant in the short-to-medium term. Additionally, he reiterated that the central bank stands ready to implement further stimulus measures in the region, if needed.
In yesterday’s trading session, the common currency lost ground against the greenback following the release of soft preliminary manufacturing and services PMI readings across key European nations for November. However, the Euro recovered most of its losses against the greenback later in the session, particularly after the Markit manufacturing PMI in the US dropped unexpectedly for November. With mixed indications from the ZEW and Markit surveys in Germany this week, market participants remain uncertain about the economic prospects of Europe’s largest economy. Going forward, traders will keep an eye on next week’s revised German GDP reading to confirm whether the nation has dodged a recession for the third quarter.
Other Currencies – Highlights
The Canadian Dollar gained ground against the greenback in yesterday’s trading session following the release of mixed economic data in the US. Additionally, an increase in global crude oil prices provided some support to the Canadian Dollar against the majors.
In today’s trading session, the Dollar is trading in a tight range against its key peers ahead of the domestic consumer price inflation report for October. The report is anticipated to show an acceleration in the annual pace of inflation despite the recent weakness in global energy prices. Today’s data is likely to attract considerable attention among market participants, especially after the Bank of Canada’s Deputy Governor, Agathe Cote, indicated earlier this week that the central bank should raise its inflation target. Going forward, next week’s retail sales and GDP data in Canada will prove crucial for further direction to the Canadian Dollar against its key peers.