GBP claws back some recent losses

With a lack of fundamental data out yesterday from the UK, market movements were as a result of speculative traders and the tier two data releases from Europe and the States. As a result, the pound did gain against all its major counterparts, clawing back some of Wednesday's losses. Sterling noticeably appreciated against the Greenback for the second day in a row following a heavy depreciation which saw the pair reach an 11 month low of 1.5872 interbank on Wednesday. There is no data out of the UK today and we have to look forward to next week for any significant fundamentals. Come Wednesday next week, we will be greeted with the minutes from this week’s Bank of England monetary policy meeting. Considering how unbalanced the macroeconomic data has been, it is likely that market participants will be expecting some volatility as we discover the latest stance on the committee's inflationary outlook for the economy as well as establishing how individual members of the committee voted, most interestingly, whether there are still two members voting for a rate hike or whether those individuals have retracted votes or formed an alliance with other members.

Stateside, there was an array of tier two data released; we saw the number of people who applied for jobless benefits fall by 23,000 as the initial jobless claims figures showed a bullish reading of 264k against the consensus of 290k. This was the lowest reading since April which really backs up the strength we have seen in the labour market as of late. Continuing jobless claims figures were also released with a bullish reading of 2.389m against the consensus of 2.380m, with yesterday’s report also showing the unemployment rate among people eligible for benefits was held at 1.8%. The National Association of Home Builders released figures giving an insight into the housing market in the States. We saw the readings drop from the consensus and last month's reading of 59 down to 54, the first negative reading in five months which were the lowest levels since July. NAHB Chief Economist, David Crowe, stated “historically low mortgage interest rates, steady job gains, and significant pent up demand all point to continued growth of the housing market", suggesting both he and the market consensus are still bullish despite the negative reading. Philadelphia Fed Manufacturing Survey figures showed a positive reading of 20.7 against the consensus 20.0 indicating continued growth in the manufacturing sector. However, the readings are down from last month’s 22.5 reading. On the whole, the majority of the data released in the States was bullish, however, the Greenback did not have enough momentum to sustain its recent gains against the pound.

Following suit, there was no top tier data out of Europe, however, we did see both consumer price index and consumer price index core figures released. The core figures showed a positive reading of 0.8% against the 0.7% consensus - probably much to the relief of Draghi and other members of the ECB committee. The Core CPI is a key indicator to measure inflation and changes in purchasing trends. The Consumer Price Index for September showed a reading of 0.3% matching consensus. Despite German inflation meeting consensus and eurozone inflation exceeding expectation, much of the euro strength has actually been as a result of a pull-back on expectations as to when a US rate hike will materialise. A weaker inflation reading would have of course been to the detriment of the common currency but since the figures were posted the market seems to have put deflationary fears to one side. Downside risks do still remain for the euro, especially with attention now turned to the bloc debt crisis - worries surrounding Greece's fiscal health have risen which has also taken it still on markets in Spain and Italy. This provides huge potential for the euro surge seen this week to merely be an anomaly both fundamentally and technically.

Strong dollar sentiment combined with China’s recent economic struggle and falling commodity prices could dominate, and the Aussie could struggle in the coming months. By early 2015, the markets should start pricing in an RBA tightening cycle in which the first hike is expected as early as August 2015. This could provide a much needed boost for Australian dollar.