GBP/EUR 1.2744 (0.7846)
We start the commentary off today with the US mid term election results which saw the Republicans roll up big victors last night and seized control of the U.S. Senate. This result helped tip the balance of power away from President Barack Obama and has raised hopes for an end to the political gridlock in Washington, thus helping to boost risk sentiment.
These results saw the dollar rise to seven a seven-year high against the Japanese yen while
while the dollar index gained .2% against a basket of six currencies to 87.185 to edge near a four-year peak of 87.406 set on Monday.
The greenback certainly has the wind behind its sails now, with Monday’s ISM manufacturing index emphasising the optimism in the air at present. The headwinds have the potential to surge with today’s data. Today’s ADP Non Farm Employment change reading will provide us a useful context for anticipating Friday’s official figure. Analysts project that payrolls in today’s October release will continue to show growth in excess of 200,000. Today’s release is expected to deliver a slightly stronger monthly than of 220K vs Septembers 213K reading. We also have the Services ISM figure for October due later this afternoon, it is expected to come in at 58 which would be a slight decline from September’s 58.6.
To the Eurozone where we have seen the single currency start to hold ground against the majors advances. This is on the back of apparent rumours suggesting that the ECB may hold fire on its euro-depreciating policy as quarrels amongst governing members around ECB chief Mario Draghi’s management style. We will hopefully get a better understanding of this apparent rift during Thursday’s ECB meeting and monetary policy announcement.
Despite last week’s mild uptick in the euro area inflation to 0.4% medium-term inflation expectations still remain subdued. The European Commission yesterday cut its growth forecast for the Eurozone this year to 0.8%, down from the previous 1.2% estimate. Today’s retail sales however could provide Draghi with an escape route before Thursday’s potential fireworks. A positive reading here will ease the pressure somewhat as we may finally be seeing the fruits of all the previous policy manipulated efforts. Economists predict that retail sales will drop 0.8% on a monthly basis. The annual comparison, on the other hand, is expected to remain relatively firm, posting a 1.4%.
We have the final UK PMI release this morning, with the services PMI number due out at 9:30am. The services sector accounts for around two thirds of UK GDP which amplifies the importance of the release. However growth is expected to slow for a second consecutive month and edge down to 58.5 in October from 58.7 in September.