Worries about global growth have increased after warnings from the International Monetary Fund. A further concern for investors, particularly ones with exposure to the euro, will be Thursday’s European summit. After Spain’s recent downgrade, traders will be desperate to learn what progress is being made to guard against another fall out in European financial markets.
Sterling will have several key local economic reports to deal with, as well as Bank of England minutes, in what could turn out to be a volatile few days for the British currency.
Record low US unemployment data helped dampen risk aversion and US manufacturing and retail sales figures may help to keep trading somewhat positive. ZEW survey is forecast to show the German economy, Europe’s growth-engine, weathering the debt crisis a little easier now.
Attention should then shift to Chinese data and the European summit; two events that could potentially turn currency markets upside down if expectations are not met.
Sterling
Improved enthusiasm for risk has given the British pound a little padding heading into what could turn out to be a volatile week. Investors will examine upcoming UK economic data very carefully as they consider whether or not the Bank of England will open its quantitative easing chequebook one more time at its meeting. Inflation data will be followed by unemployment figures and retail sales while the BoE will also publish minutes from its previous meeting.
US dollar
Demand for the US dollar is generally weaker and the currency could lose sight of the one-month highs it hit on a trade weighted basis on October 11 ahead of forthcoming US economic data, which may add some brighter colours to the global growth picture. The US currency fell late after record low weekly US unemployment claims increased risk taking at the expense of the safer greenback.
Euro
Investors are slowly beginning to lose confidence in the euro again before European leaders gather for the latest high-profile two-day summit to deal with the debt crisis. Standard & Poor’s downgraded Spain to a level just above junk and other agencies are likely to follow suit. The real danger for the euro is that the longer Madrid continues to avoid requesting financial support from the EU, the greater the risk becomes of the country eventually taking a chaotic tumble into the region’s bailout pit. Prior to the gathering there is hope for the single currency to revisit recent three-week highs against the pound.