Euro climbs as the markets calm down

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Hopes of a comprehensive response to the European financial crisis helped to calm the markets yesterday, assisting the Euro and the commodity currencies - the Australian Dollar and New Zealand Dollar - higher against the US Dollar. Although there was little substance announced following last weekend's EU finance meeting between Merkel and Sarkozy, the pledge of a detailed plan by the end of October combined with the Bank of England's quantitative easing and coordinated efforts to relieve funding stress by the BRIC's (Brazil, Russia, India and China) and other Central Bank's have provided short-term relief to battered markets.

Sterling didn't fare too well in the face of the calmness, dropping a cent against the Euro and the commodity currencies, but holding firm around 3-week highs against the US Dollar. It has done better this morning following an unexpected rise in UK retail sales last month.

Like-for-like retail sales values were 0.3% higher compared to September 2010, beating forecasts for a 1% fall, giving the high street a rare glimmer of hope at a time of weak consumer confidence and tough trading conditions.

The Royal Institute of Chartered Surveyors however had a rather stark warning for the UK housing market even though the house-price index was unchanged last month. Weak consumer sentiment and uncertainty about the economic outlook caused potential sellers to defer putting their homes on the market, the Royal Institution of Chartered Surveyors said. They went on to say the property market is failing to gain momentum as first- time buyers struggle to afford a mortgage and inflation out paces wage growth.

In Australia business confidence improved from -9 to -2 while business conditions declined from -3 to 2. Consumer confidence in Japan was up by a point and a half at 38.6, its best level since March this year.

Coming up today are UK industrial and manufacturing production, and NIESR's estimate of gross domestic product growth in the third quarter.