Euro weakened by unease over EU plans for recovery

Today's Highlights

Sterling recovers ahead of GDP data

Euro weakened by unease over EU plans for recovery

US Dollar drops on speculation over delay in QE conclusion

FX Market Overview

Good morning. I hope you had a great weekend. The story that struck me over the weekend was the analysis of King Tutankhamun's remains. The digital autopsy has revealed that the young man was the product of incest, had a club foot and had Kim Kardashian's hips. Poor soul. It must have been hell to get jeans to fit.

Aside from this; cast your mind back to last week and you will remember just how volatile things were. Well we are probably in for much the same this week so don't despair. It started with poor German producer price figures this morning and the week continues with European data including Purchasing Managers indices, manufacturing confidence indices, consumer confidence indices and a bit of retail sales data just to keep us busy. This data is forecast to be overwhelmingly poor so the euro may well have a rough ride this week if the forecasters have got their sums right. In addition to that, European leaders are calling for bold measures to try to sort the Eurozone economy out. However, such is the glacial pace of change in Europe that it may be a long time coming. From a chart perspective, the Sterling - Euro exchange rate is just about holding above the long term trendline. So technically, there is scope for an advance in the rate towards €1.30.

On the UK side of that equation is a report from Deloitts showing UK consumer confidence at a 3 year high and last week's very robust UK employment data. There is also a lot of expectation that UK interest rates will stay at their historic low for perhaps another year. That is a negative for the Pound in terms of yield for investors but it will help to stimulate growth and the fight that appears to be starting amongst mortgage providers ought to keep the housing market afloat. We will get to see the minutes from the last Bank of England meeting this Wednesday and we will get government borrowing data as well as retail sales numbers. If this data is in keeping with the recent positive vibe, Sterling is likely to recover from last week's losses. The huge caveat to that is that, On Friday, we will get the 1st estimate of UK economic growth during the 3rd quarter of the year. Growth above 3% will keep Sterling pointing in the direction of strength. Less that that will have the opposite effect.

The US Dollar weakened a little in late trade on Friday and the US share markets rallied amid speculation that the Federal Reserve May delay the finalisation of their bond buying program. We won't get a firm answer to that until 29th October but this week's data may give some hints on the Fed's influences. US inflation data will be released tomorrow and we will get a couple of pieces of housing market data plus some manufacturing indices. It isn't the usual raft of US data but it will be enough to keep tongues wagging.

This week also brings a few other central bank themes. The Reserve Bank of Australia will release the minutes from their last board meeting tomorrow and then we will get a speech from the Deputy Governor tomorrow and from the Governor himself on Wednesday. The Australian Dollar is a tad weaker against the Pound this morning but trading is a lot calmer than it was last week. So far so good but we will see what happens when the central bankers have their say.

The other central bank in the news will be the Bank of Canada. No one seems to be expecting any change in interest rates when they make their announcement on Wednesday and Sterling's strength looks like it may be enough to push the GBP-CAD exchange rate back towards C$1.8350 over the weeks ahead.

On a separate note, beware of leaving your lawn unkempt - especially if you live in Tennessee. Karen Holloway of Lenoir City was sent to jail for 5 days for....not mowing her front lawn. It kind of suggests the Police in Tennessee don't have enough to do doesn't it. However, Karen is a repeat offender; while her husband was deployed overseas while he was in the army, she was also cited for not keeping her garden tidy. Rather than offer to help the working mother of 2 and military wife; your neighbours report you to the police. Move Karen! Your neighbours are asses.