The pound remained relatively muted during the overnight trade after UK consumer confidence in September fell for a fourth consecutive month, as unemployment reached 15 year high and inflation in September reached 5.2%. An index of sentiment dropped by 3 points from the previous month to 45, the lowest reading since the first half of 2011. The Bank of England Minutes this week revealed that economic growth may stall in the current quarter after second quarter GDP was just 0.1%. The Minutes report also showed that all nine members of the Monetary Policy Committee (MPC) voted to raise QE program to 275 billion pounds and left the benchmark rate unchanged at 0.5%. Looking ahead to today, public finances data for September headline the economic calendar, with the expectations for the PSNBx (Public Sector Net Borrowing excluding Interventions) to drop to 15.0 billion pounds from 15.9 billion pounds. The year to date borrowing numbers suggests that the government is on track to achieve its deficit target, but weak economic outlook in second half of the year may prove to be too much to accomplish the same result in the second half of the year. Expect for the pound to remain driven by the events in Europe as EU leaders meet in Brussels on a two-day meeting to discuss the ongoing debt crisis.
The euro dropped against most of its rivals during the Asian session on concern that European policymakers can’t find the solution to break a deadlock between Germany and France on Eurozones debt crisis. The EU is considering several scenarios regarding Greek crisis, raging from sticking with July’s voluntary swap to a so-called hard restructuring, where investors could be forced to exchange Greek bonds with new ones at 50% of their value. Looking ahead to today, German IFO business confidence report headlines the economic calendar, with the expectations for the release to drop to the worst level of the year. Expect for the single currency to find its short-term direction after EU summit this weekend.
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