UK Services PMI will be a key focus this morning; the index fell in October to 50.6 – the lowest level since December 2010. Market is currently expecting the survey to rebound to 51.0; there is a slight upside risk to today’s number following the strong improvement in manufacturing PMI seen earlier this week. The UK Autumn statement could see some interest. The statement will likely focus on the weakness of the economy and its impact on the borrowing profile. There are also likely downward revisions to future GDP growth forecasts, however Lloyds TSB expect a relativity muted market response in FX.
EUR/USD upside bias continued yesterday helped by optimism surrounding the Greece with the bond buyback underway. Eurozone Services PMIs this morning look unlikely to trigger much market reaction with French, Germany and aggregate numbers unlikely to be revised much from the initial flash numbers; and Spain and Italy numbers look likely to be little changed form last month. EUR/USD looks likely to maintain its upside bias, and stronger US numbers could push the currency pair higher but the October higher of 1.3140 should provide initial resistance.
USD continued to edge marginally lower yesterday as EUR/USD maintained its upside bias. There has been a slight positive risk tone since the start of the week; despite continued uncertainty surrounding talks on the US fiscal cliff. Today’s US numbers could impact the current market tone. Non-manufacturing ISM is expected to soften likely similar to the decline seen earlier this week to the ISM Manufacturing numbers. ADP employment numbers will be a key focus today, providing an indication for Friday’s non-farm payrolls. The market is expecting employment growth to slow, rising by 125k in October.
Yesterday Riksbank Governor Ingves gave a speech highlighting Riksbank’s key focuses to monetary policy decisions. He highlighted that SEK is not one of the central bank’s main issues, and thought is was about the right level. This provided some support for SEK yesterday. Domestic economic developments, such as inflation and unemployment as well as household indebtness were considered important to the repo rate decisions. At the last Riksbank meeting, there was a notable dovish tone with the Riksbank indicating a possible rate cut before year end. This has seen the market broadly price in a 25bp rate cut at the December meeting, however last week’s slightly better Q3 GDP number prompted an easing in market expectations. The market currently sees a 65% probability of a rate cut.
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