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The British pound was little changed on Friday following the four-day rally and the currency may continue to retrace the sell-off from the previous month as the economic outlook for the U.K. improves. At the same time, former Bank of England member Charles Goodhart expects the central bank to tighten policy over the coming months and said that “the expansion of quantitative easing will be reduced in scale and possible paused for a time” as he anticipates the BoE to follow other central banks “cautiously,” and long-term expectations for higher borrowing costs could drive Cable higher over the coming month.

The GfK consumer confidence survey rose to a 21 month high in October, with the index advancing to -13 from -16 in the previous month, and the data reinforces an improved outlook for private spending as households turn increasingly optimistic towards the economic recovery. The breakdown of the report showed the gauge for major purchases rose to -12 from -15 in September, which is the highest since November 2007, while expectations for future savings slipped to -6 from -5 in the previous month. Moreover, the Nationwide house price index rose 0.6% in October to mark the sixth consecutive monthly advance, while the annualized rate rose 2.0% from the previous year to post the first annual increase since March 2008, and conditions may continue to improve throughout the second-half of the year as policy makers take unprecedented steps to stimulate the ailing economy. As policy makers see the nation emerging from the worst recession since the post-war period, the BoE may follow suit and begin to implement an exit strategy over the remainder of the year, and market participants may ramp up expectations for a rate hike in the following year as the central bank anticipates the economy to return to growth in 2010.

The Euro slipped to a low of 1.4805 during the overnight session following an unexpected drop in German retail sales, but bounced back to hold along the 20-Day SMA at 1.4850 however, the lack of momentum to close above the moving average during the last two-days may keep the pair within a narrow range going into the U.S. trade as investors weigh the outlook for global growth. Retail spending in Germany slipped 0.5% in September amid expectations for a 1.0% rise, while the annual rate of consumption plunged 3.9% from the previous year after falling 2.9% in August. Moreover, the annual rate of unemployment rose to 9.7% from 9.6% in August, which is the highest since January 1999, while the consumer price estimate weakened 0.1% in October to mark the fifth consecutive monthly decline, and the European Central Bank may hold a dovish policy stance throughout the second-half of the year as the outlook for growth and inflation remains far from favorable.

U.S. dollar price action was mixed overnight, with the USD/JPY slipping back below the 50-Day SMA (91.23) as the Bank of Japan voted to halt its corporate debt purchases at the end of the year, and the reserve currency may face increased volatility going into the North American trade as investors weigh the outlook for future policy. Economists forecast personal spending in the world’s largest economy to fall 0.5% in September after growing 0.1% in the previous month, while personal incomes are projected to hold flat after advancing 0.2%, and the data could weigh on the exchange rate as policy makers continue to see a risk for a protracted recovery. At the same time, manufacturing activity is anticipated to fall at a slower pace in October as market participants forecast the Chicago PMI to rise to 49.0 from 46.1, while the final U. of Michigan confidence reading is expected to increase to 70.0 from 69.4, and we may see some mixed reactions following the slew of data on the last trading day for October.