Today’s UK retail sales data has disappointed investors, putting further pressure on the Pound against the US Dollar. A slower pace of growth in retail sales for September has raised doubts about the prospects for the economy going forward. Yesterday’s minutes from the BoE’s recent policy meeting had also weakened expectations of an early interest rate rise in the UK. However, tomorrow’s GDP report will be crucial in helping investors to reassess their view on the UK’s macroeconomic health and the future course of the monetary policy in the UK.

Across Europe, data showed that the pace of manufacturing sector activity in Germany rebounded unexpectedly during October, suggesting that difficult conditions in the economy are fading away.

Pound Sterling – UK Markets

Data just out has shown that the annual retail sales growth in the UK slowed more than expected for September. In the light of the recent drop in Britain’s inflation rate, today’s data has highlighted that consumer confidence in the UK is deteriorating. The BBA, in their report today, revealed that the number of mortgage approvals in the UK fell for September. Today’s data has limited the upside for Sterling against the majors. Traders will keep a tab on tomorrow’s preliminary UK GDP reading to reassess their view on the nation’s economic health during the third quarter.

Sterling lost ground against the greenback yesterday following the BoE minutes of the last policy meeting. Although the minutes revealed that two policymakers maintained their vote for an immediate interest rate rise, the remaining officials stood firmly against it. The latter believe that a slowdown in UK’s inflation with no signs of improvement in the Euro zone economy might pose a risk to the British economy. The dovish tone of the minutes stoked fears that the BoE may well keep its key interest rate unchanged for a prolonged period.

US Dollar – US Markets

The greenback gained ground against the majors in yesterday’s trading session. Data released yesterday revealed that consumer prices in the US rose more than anticipated for September. Housing and food costs climbed, while low energy prices limited the overall monthly increase. In the light of recent concerns voiced by various Fed officials about the weak US inflation rate, yesterday’s data has provided some relief to investors. However, market participants are anticipated to keep a tab on next week’s Fed policy meeting to ascertain if the central bank remains on course to wind up its bond buying programme this month.

The preliminary Markit manufacturing PMI reading in the US for October will be watched to gain an early insight into the health of the manufacturing sector during the fourth quarter. Separately, the weekly jobless claims report is expected to indicate that the number of claimants for jobless benefits in the US increased for the previous week, but remained below the 300K mark.

Euro – European Markets

The latest PMI releases in the Euro zone offered a broadly positive picture of the region’s economy. The Euro recovered from today’s intra-day lows after the German PMI reading showed an unexpected expansion in the manufacturing activity for October. Fears of a slowdown in the Euro zone partially subsided after the latest figures showed a faster than expected pace of expansion in private sector activity for the current month. However, economic releases from France continued to portray a grim picture, as the PMI data for October reaffirmed weakness in the French private sector.

The Euro was under pressure during yesterday’s trading session and slid below the 1.27 mark against the US Dollar amid media reports that eleven European banks have failed the ECB’s stress test and persistent speculation of further monetary stimulus in the Euro zone. The official results of the stress test is scheduled for release during the weekend. For the day ahead, investors will keep a tab on Euro zone’s preliminary consumer confidence report which is anticipated to show a further deterioration in the region’s consumer morale.

Other Currencies – Highlights

The New Zealand Dollar lost ground against the greenback in yesterday’s trading session following the release of encouraging US consumer price inflation report for September. Additionally, the Kiwi came under further pressure after a report released earlier today revealed that consumer price inflation in New Zealand eased more than expected for the third quarter. The weak inflation data stoked fears among investors that the Reserve Bank of New Zealand might keep its key interest rate unchanged for a prolonged period. This resulted in the Kiwi Dollar to lose ground against the greenback and drop below the 0.79 mark.

Going forward, market participants will keep an eye on today’s trade data in New Zealand which is expected to show that the nation’s trade surplus narrowed for September due to a drop in exports.